LAO: Brown’s Pension Plan Is Step Forward, but Many Questions Remain
Gov. Jerry Brown's (D) 12-point pension reform plan represents a significant step toward controlling costs, but several questions remain, according to a report by the non-partisan Legislative Analyst's Office, the AP/San Jose Mercury News reports (Lin, AP/San Jose Mercury News, 11/8).
Estimates have calculated that CalPERS owes as much as $240 billion in unfunded pension obligations for 1.6 million state and local employees, retirees and their beneficiaries (Ortiz, Sacramento Bee, 11/9).
In late October, Brown unveiled details of his plan to overhaul public employee pensions. The plan would increase how much workers pay toward their retirement and health care costs and establish a "hybrid" pension system that combines a traditional pension with a 401(k)-style account. Brown's plan also would raise the retirement age for new workers not in public safety positions from 55 to 67 and ban pension spiking, in which workers can use overtime and other benefits to boost their payouts (California Healthline, 11/3).
Brown's plan also seeks to:
- Require new public employees to work for 15 years to become eligible for state-funded health care premiums and for 25 years to become eligible for the maximum contributions; and
- Terminate state-provided premium coverage when individuals reach Medicare eligibility age and instead fund coverage for Medicare premiums and limited medical benefits (AP/Ventura County Star, 11/8).
Brown said he wants the Democratic-led Legislature to address pension reform.
Labor unions have criticized the plan and likely will pressure lawmakers not to reduce benefits (AP/San Jose Mercury News, 11/8).
Details of the Report
According to LAO, Brown's plan signifies a "bold starting point for legislative deliberations." However, LAO questioned the legality of Brown's proposal to equally split pension costs between current workers and their employers.
In addition, the report said Brown's plan neglected to address pension and retiree health care shortfalls that challenge the University of California and the California State Teachers' Retirement System (Sacramento Bee, 11/9).
LAOÂ added thatÂ the governor's proposed changesÂ to state-funded health care and Medicare premiumsÂ could drastically lower long-term health care costs for retirees but that many details still need to be worked out (AP/Ventura County Star, 11/8).
Overall, LAO concluded that "it will be very difficult -- perhaps impossible -- for the Legislature, local governments, or voters to mandate such changes for many current public workers and retirees." LAO said "employer savings from these changes likely will be offset to some extent by higher salaries or other benefits for affected workers."
The report recommended that lawmakers focus on changes to future employee benefits (Joseph, "OC Watchdog," Orange County Register, 11/8).
Response to Report
Dave Low -- chair of Californians for Retirement Security, which represents 1.5 million public employees in the state -- said, "The LAO's mixed assessment of the governor's pension proposals hits the nail on the head when it says that the Legislature should move forward in a deliberate and reasoned fashion to craft solutions to California's complex pension systems."
Evan Westrup -- a spokesperson for the governor's office -- said, "We welcome the LAO's analysis as we move forward to achieve these critical reforms" (Harmon, Contra Costa Times, 11/8).
Lawmakers To Review Governor's Plan
The Los Angeles Times reports that a legislative committee will review Brown's pension reform plan on Dec. 1 and will have the chance to publicly question administration officials (York, Los Angeles Times, 11/9).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.