Brown Plan May Curb California Pension Risk, Analyst Says

Brown Plan May Curb California Pension Risk
Jerry Brown, governor of California, points to a chart as he introduces his revised 2011-2012 fiscal year budget proposal at the State Capitol in Sacramento. Photographer: Ken James/Bloomberg

Governor Jerry Brown’s plan to raise retirement ages and force new public employees into a hybrid 401(k)-style pension plan would “substantially ameliorate” California’s financial risk, a state analysis said.

Brown’s proposal to trim pension benefits for future workers and require them to contribute more toward retirement represents a “bold, excellent starting point” toward reining in California’s long-term liabilities, the state Legislative Analyst’s Office said today in a report. The analysis doesn’t estimate projected savings from the governor’s 12-point plan.

“His proposals would shift more of the financial risk for public pensions -- now borne largely by public employers -- to employees and retirees,” Deputy Legislative Analyst Jason Sisney said in the report. “These proposals would substantially ameliorate this key area of long-term financial risk.”

Brown, 73, proposed his changes to pensions Oct. 27, saying they would cut in half the most-populous state’s projected $1.8 billion in pension obligations this year. He would raise the retirement age for full benefits to 67 from 55 for all except public-safety workers, require employees to pay for at least half of their pension benefits, and replace the traditional defined-benefit pension with a hybrid in which the retiree bears some risk.

Unmet Concerns

The report faulted Brown as well. The governor failed to deal with “huge” funding shortfalls in the California California State Teachers’ Retirement System and the pension for University of California employees, Sisney said in the study. Brown also didn’t come up with a way to pay for retiree health benefits, he said.

“We welcome the LAO’s analysis as we move forward to achieve these critical reforms,” Evan Westrup, a Brown spokesman, said by e-mail, referring to the Legislative Analyst.

The state hasn’t contributed toward the University of California system’s pension costs, forcing it to divert money from other areas, according to a statement today from the president’s office. The Board of Regents plans to vote next week on asking for $87.6 million for pensions covering the 10-campus system, representing only a quarter of the state’s designated contribution of $255.6 million, the statement indicated.

Brown also would curb “pension spiking,” the practice in which a worker’s pension is inflated by artificially boosting late-career pay, and “double dipping,” in which an employee receives a pension while working another government job.

Calpers Board

The Democrat also would add two outsiders to the board of the $228.1 billion California Public Employees’ Retirement System, the biggest U.S. public pension.

Rising retirement obligations are straining the budgets of states such as California and cities across the U.S. still grappling with income- and sales-levy revenue slammed by the longest recession since the Great Depression. A weak recovery has churned up a backlash against the pay and benefits of public workers nationwide as taxpayers see their own job prospects and 401(k) retirement funds shrink.

California’s pensions in 2010 had assets to provide almost 81 percent of projected benefits, down from about 87 percent in the preceding year, according to an annual study by Bloomberg Rankings. The median for all states was almost 75 percent.

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