Proposal for Pension Benefit Changes Would Create ‘Uncertainty’

In a letter sent to California Attorney General Kamala Harris (D) on Tuesday, legislative analyst Mac Taylor said the effects of a potential ballot proposal that would make changes to pension benefits, including health insurance, are unclear, the Sacramento Bee's "The State Worker" reports (Ortiz, "The State Worker," Sacramento Bee, 7/29).

Background on Plan

The plan, proposed by former San Jose Mayor Chuck Reed (D) and former San Diego council member Carl DeMaio (R), would require California to put any proposed pension and retirement benefit changes to a public vote.

Under the proposal, which seeks to cut rising retirement costs, "defined-contribution" plans would become the default retirement program for state and local employees hired after Jan. 1, 2019. Employers would need voter approval to add new workers to "defined-benefit" plans, which currently are common for government employees.

In addition, the plan would prevent:

• Government employers from paying more than 50% of retirement benefits without voter approval; and
• Lawmakers and government agencies from filing lawsuits or pursuing other actions to interfere with voter-approved ballot measures related to state employee compensation or retirement benefits (California Healthline, 6/5).

According to "The State Worker," such provisions likely would significantly reduce pension and retiree health costs for state and local agencies. However, unions have lambasted the plan for its potential to undermine collective bargaining and cut public employees' compensation.

Harris has until Aug. 11 to issue a title and summary of the measure.

Details of Analysis

According to the letter, the pension proposal would result in "uncertainty" and various "trade-offs."

For example, Taylor's analysis notes that:

• If voters have final say on compensation, the result "could increase or decrease governmental employer costs";
• If approved, the measure likely would be challenged in court, subjecting it to more uncertainty;
• Requiring voter approval for labor agreements "could affect the dynamics at the collective bargaining table," which "likely would result in different outcomes"; and
• While the plan says it would not modify death or disability benefits, it does not necessarily protect those benefits from future changes made by the electorate or government employers ("The State Worker," Sacramento Bee, 7/29).

California Pensions Outpace National Trends

In related news, assets of California's state and local government pension programs grew by more than $100 billion in fiscal year 2013-2014, according to a report by the Census Bureau, the Sacramento Bee's "Capitol Alert" reports.

According to the report, payouts to California retirees rose by $3 billion, but pensions still saw significant asset gains because of:

• Additional contributions from government employers and workers; and
• An increase in investment earnings.

By the end of the fiscal year, California's pension system assets increased by 15.5% to $751.8 billion. In comparison, state and local pension funds nationwide experienced an average 12.8% increase.

According to "Capitol Alert," California's pensions systems likely will see more modest gains in the next fiscal year (Walters, "Capitol Alert," Sacramento Bee, 7/28).