Governor Releases Proposed Language for Pension Reform Plan

Governor Brown yesterday released statutory language to the Legislature in an effort to place his pension reform plan on the November 2012 ballot. Since the proposal, which has not yet been introduced, would amend the state constitution, a two-thirds vote of the Legislature is required for its passage. 

The language closely reflects the 12-point plan the Governor released in October and would take effect January 1, 2013 and apply to public employees hired on or after July 1, 2013. The language includes:

• Prohibiting the purchase of service credit or “airtime” after January 1, 2013 (those requests for purchase made prior to that date would be honored).
• Forfeiture of all retirement benefits earned or accrued from the earliest date of commission of any felony under state or federal law by public employees and appointed officials for conduct arising in or out of the performance of official duties, or in the pursuit of office or appointment, in connection with obtaining salary, disability and/or service retirement.

Benefits earned prior to felony commission would not be forfeited.

The public retirement system would be able to assess the member for the cost of any audit, adjustment or correction.

• Prohibiting retroactive benefit enhancements; those retirement benefit enhancements adopted after January 1, 2013, would apply only to service performed on or after the enhancement date; this restriction would also apply to any classification change resulting from the benefit enhancement.
• Mandating that employees contribute at least 50 percent of normal costs for the defined benefit plan or defined portion of a hybrid plan. The transition to a 50 percent contribution level would be phased in over a period of no more than three years (to be determined through collective bargaining).
• Prohibiting retirees from returning to public employment unless during an emergency to prevent the stoppage of public business or the retiree has skills necessary to perform the work.

The proposal would limit all public retirees to working 960 hours or 120 days per year for a public employer and prohibits all retired employees who serve on public boards and commissions from earning retirement benefits for that service.

• Redefining “final compensation” as the highest average annual compensation over a three-year period and prohibiting the inclusion of accrued vacation, sick or other leave, severance pay, overtime, the dollar value of in-kind remuneration, and supplemental payments (uniform, housing allowances, bonuses) in the calculation of retirement benefits.
• Revising the CalPERS Board of Administration by replacing the position on the Board currently held by the State Personnel Board and replacing it with the Department of Finance and adding two members, appointed by the Governor, who represent the public, have financial expertise and do not have interest in the system.
• Ending “pension holidays” by prohibiting employers from suspending employer and/or employee contributions necessary to fund the annual pension costs of the pension fund.
• Raising retirement ages and requiring employers to offer a “hybrid plan” option to employees designed to provide replacement income of 75 percent of final compensation (based on a full career in public service – 30 years for public safety employees and a normal retirement age of 57 and 35 years for miscellaneous employees and a normal retirement age of 67).

Labor unions quickly responded to the Governor’s action, calling it an “unacceptable assault on current and future public employees” and vowing to fight attempts by the Governor and Legislature to undermine collective bargaining agreements.

CSAC will keep you apprised of any further actions.