Moody’s Says Pension Reform Bill Would Boost State Credit Outlook
On Monday, Moody's Investors Service in a new report said that California's pension reform bill (AB 340) would help the credit outlook for the state and many local governments and agencies that participate in CalPERS, Reuters reports (Reuters, 9/10).
Last month, lawmakers approved the legislation.
It was sent to Gov. Jerry Brown (D) for consideration. He is expected to sign the bill.
Details of the Bill
The bill -- developed by Brown and Democratic lawmakers -- would:
- Require all current and future public workers at every level of government to pay at least 50% of their pension costs;
- Increase the retirement age by at least two years for future public workers; and
- Cap the amount of future public workers' salaries that can go toward their pensions at $110,000 for those participating in Social Security and $130,000 for those not participating in the program.
The bill would apply to most public workers. However, it would not affect employees of the University of California system or of charter cities with independent pension systems.
Altogether, the bill includes 10 of the 12 points included in Brown's original pension reform plan.
The bill does not include the centerpiece of Brown's original plan, which was a requirement that new workers have a significant portion of their retirement money placed in 401(k)-style accounts. The requirement would have shifted more financial risk from the state to workers (California Healthline, 9/4).
CalPERS said that the bill would save between $42 billion and $55 billion over 30 years, while the California Teachers' Retirement System estimated its savings at $22.7 billion over 30 years (AP/Sacramento Bee, 9/10).
Moody's Findings
In the report, Moody's said that reducing spending on pensions would boost finances.
"Such savings are credit positive for both the state ... and local governments that participate in the state's cost-sharing pension plan," according to Moody's (Reuters, 9/10).
The ratings agency said that cities and counties will save the most under the bill (AP/Sacramento Bee, 9/10).
Moody's rates California an 'A1' with a stable outlook (Reuters, 9/10). 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.