California Pension Reform

With one of the largest pension systems in the United States, California reform has been a topic of conversation for awhile. Last week, the state senate voted 36-1 to position massive changes for a final okay from Governor Jerry Brown. A combination of salary caps (used to determine pension benefits), increased retirement age and higher contributions from employees is expected to save taxpayers billions of dollars every year. Some critics say that this is a drop in the bucket and that much more is needed.

According to "Calif. Lawmakers Pass Pension Reform Measures" by Erin Coe (Law360.com, August 31, 2012), Governor Brown had hoped for broader changes to "rein in rising retiree health care costs," create a 401(k) type retirement plan for new employees and allow the state's pension board more latitude in decision-making. 

Click to download the 60-page document that lays out the details of AB  340, the California Public Employees' Pension Reform Act of 2013.

Lots of people throughout the United States are watching and hoping that change occurs quickly. Plan participants want assurances about promises made. Taxpayers are groaning about possible hikes to cover what they describe as employee benefit plan largesse. Municipal bond investors are nervous about defaults.

Reason Magazine's Steven Greenhut writes that Vallejo's attempts to restructure were followed by "Stockton, then Mammoth Lakes, and now San Bernardino and soon possibly Compton," with pension and health care plan participants often showing up as creditors.According to "Battle over pension debt looms in San Bernardino bankruptcy" by Tim Reid (Reuters, August 30, 2012), the California Public Employees' Retirement System ("CalPERS") is listed as San Bernardino's largest creditor. A sign of possible trouble ahead, what is at stake depends on who you ask. CalPERS estimates that is owed $319.5 million in contrast to the city's number of $143.3 million.

Earlier this year, Senator Orrin Hatch's office published a report that showed that state and local pension plans with funding ratios below eighty percent had risen from about five percent in 2000 to forty percent in 2006. The study adds that eleven states will likely exhaust their defined benefit plan assets by 2020. The report suggests that heightened disclosures on the part of state and local plan sponsors and a change from a defined benefit plan arrangement to something else merit emphasis before taxpayers are asked to pay more. Click to read "State and Local Government Defined Benefit Pension Plans: The Pension Debt Crisis that Threatens America," United States Senate Committee on Finance, January 2012.

Notably, this blogger addressed the issue of public pension plan funding on July 27, 2006 in "Tea Party Redux: State Pensions in Turmoil." The reference to "tea party" was to a historical event and not the political party.

Source: http://feeds.lexblog.com/~r/PensionRiskMatters/~3/kdJUBmuq3NQ/

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