The problems posed by our public employee pensions have become headline news. Recent news coverage details large unfunded liabilities and public opinion polls demonstrate the increasing concern of voters.
Recently I filed the Public Employee Pension Reform Act. This is a proposal of three very reasonable reforms to lower the costs of public employee pensions that have become unsustainable.
I want to stress that this is not in competition with the efforts of Senate Republicans. I strongly support their efforts. However, as those negotiations have broken down there has been talk that the Governor may pursue a tax increase initiative in November, sidestepping Republicans’ reform proposals. While it is my preference that the Governor and Legislature work out a deal for the June ballot, my initiative insures that reforms will remain a part of the discussion.
The Employee Pension Reform Act is based on the premise that government has an obligation to provide adequate retirement benefits to its employees and has a responsibility to its taxpayers to insure that such benefits are affordable and adequately funded. The proposed reforms are needed because governments have provided generous attention to the former premise and not enough to the latter. The result is a system that is unaffordable to the point that its cost pressures are not only squeezing essential government services but will also put at risk the retirement security of those it intends to provide for.
As stated, the act would change three things. First, it would raise the minimum retirement age for all employees to 62. In the 1930s the state established a retirement age for government employees of 65. Since then, life expectancy has increased dramatically while the allowable age to retire has gone in the opposite direction. This not only takes employees out of public service during very productive years, it drives up costs dramatically. This is a more than reasonable change given that today’s equivalent of the 1930s’ 65 is far in excess of 62.
The retirement age is the component of this proposal that seems to have created the most concern. Increasing the age to 62 is alleged to be unfair to existing employees and unreasonable for public safety personnel.
As for non-safety related employees, while the current allowable retirement age is generally 55, the actual age at which CalPERS members retire averages about 60. Viewed from that actual experience, 62 is not a drastic increase.
For safety related employees the current allowable retirement age is generally 50. The actual average age at which CalPERS public safety members retire is about 55, so, again, the increase is not as drastic as the raw numbers may imply.
The bigger concern expressed here is that 62 is just too old for field duties and a career in public safety leads to a much lower life expectancy. As to the former point, older personnel need not be in line positions. As for the latter, it just isn’t true: At a CalPERS Board meeting in April of 2010 it was reported that the life expectancy of police and firefighters was actually slightly longer than the 81.8 years for male and the 85 years for female miscellaneous workers.
Second, the act would limit a retirement benefit for new hires to no more than sixty percent of the highest average base wage over three consecutive years. It further excludes any additional payment (overtime, severance, unused vacation pay, sick days, etc.) in the calculation of base wage. This is, in fact, whatCalSTRS pegs its benefit structure to. Further, with all this creating a more affordable system, it will likely create a better opportunity for people to fund a supplemental tax advantaged savings program.
Third, the act requires that the employee contribute an amount at least equal to the amount provided by the public agency to fund the plan.
The act further requires that all new employees work a minimum of five years before qualifying for pension benefits and prohibits any enactment of retroactive increases in benefits. It in no way affects existing disability or death benefits and does not change the existing exclusion of a paid retirement plan to members of the Legislature. And it does not affect current retirees in any way.
The clause relating to the Legislature’s retirement has been wildly misunderstood. The proposal states “Nothing in this Section shall . . . in any way affect the retirement benefits . . . provided Members of the Legislature . . .” Many who read this have cried “foul!”, the appearance being that I’m trying to protect “my friends”. The fact is, the Legislature has no paid retirement plan, that being passed by the voters over 20 years ago. This clause is necessary to insure that previously expressed will of the voters is not changed.
It is important to note that this is not a conversion to a 401K type plan that most in the private sector enjoy. It is, however, an imposition of guidelines to all public pension systems in California that bring the system more in line with the costs and benefits offered in the private sector. That is a point that has proven to be important to voters in recent polls. It is also essential to insure sustainability and affordability to public pensions in California. I believe that The Employee Pension and Reform Act accomplishes this in a fair and reasonable way.