Watchdog Commission Recommends Overhaul of State Pension System

California's state and local governments should freeze pension benefits for existing state employees and overhaul the current pension system, according to a report by a bipartisan watchdog commission, the AP/San Francisco Chronicle reports (Lin, AP/San Francisco Chronicle, 2/24).

The 12-member Little Hoover Commission unanimously approved the 100-page report (Ortiz, Sacramento Bee, 2/25).

Background

As of June 30, 2009, California had at least $115 billion in unfunded pension obligations, according to CalPERS. In addition, the state controller's office said unfunded state retiree health care costs were nearly $52 billion (AP/San Francisco Chronicle, 2/24).

While Gov. Jerry Brown (D) has proposed a mix of taxes and spending cuts to close the state's estimated $26.6 billion deficit over 18 months, the plan does not specifically address pension costs (Sacramento Bee, 2/25).

Report Details

According to the report, the state should address pension costs before they become unsustainable.

The commission suggested changing the state's set benefits plan to a hybrid model that could resemble 401(k) plans used in the private sector (AP/San Francisco Chronicle, 2/24).

Though overhauling the pension system might trigger a legal battle with labor unions, the commission suggested that the state make several changes, including:

• Rolling back pensions for existing employees;
• Ending guaranteed retirement payouts; and
• Putting more of the burden for benefits on workers (Sacramento Bee, 2/25).

The report states, "The state and local governments need the authority to restructure future, unearned retirement benefits for their employees. The Legislature should pass legislation giving this explicit authority to state and local government agencies" (Capitol Weekly, 2/24).

The commission's recommendations would not affect current retirees.

Governor's Views on Pension Reform

Evan Westrup, a spokesperson for the governor, declined to comment on the report but said the administration will review it.

Brown has proposed making changes to the pension system through negotiations with labor unions. He also has indicated that he supports a system in which newer employees would receive fewer benefits than existing workers.

In addition, Brown favors curbing the practice known as pension spiking, which occurs when the salaries of public employees are raised in the years immediately preceding retirement so they can receive larger pensions (AP/San Francisco Chronicle, 2/24).