Employee Relations 01/07/2011
Organization Puts New Pension Reform Proposals Forward
The California Foundation for Fiscal Responsibility (CFFR)
recently released two new pension reform proposals that amend the
state constitution. The proposals have not yet been submitted to
the office of the Secretary of State, the first step in putting a
measure on the state ballot.
Citing the need for fiscally responsible solutions to what the organization terms a broken pension system, both alternatives do the following:
- Require current and future public employees to pay half of their retirement costs.
- Require that benefits received from defined benefit plans be based on the average of three years of qualifying compensation, excluding overtime, sick, vacation, bonuses, and severance pay.
- Disallow retroactive benefit increases.
- Provide that public employers are not required to increase plan contributions by more than incremental revenue growth until 2020.
- Provide that new employees may not receive lifetime medical benefits prior to age 65.
CFFR’s first pension reform proposal (“Alternative A”) grants
public employers the authority to offer defined contribution
plans to their employees who are hired after July 1, 2013. For
employees hired after July 1, 2013 who opt into a defined benefit
plan, Alternative A caps their benefits at the amount of the
median statewide household income. Additionally, Alternative A
requires that after January 1, 2014, at least two-thirds of the
members of a public pension plan’s governing trustees must be
independent of that retirement system and its participating
The second proposal (“Alternative B”) freezes state and local defined benefit plans until they are fully funded and limits the amount of pension benefits current employees in defined benefit plans can earn to 1.25 percent of qualifying compensation (multiplied by years of service) after age 65 (public safety employees would receive 1.6 percent after 55). New public employees could join a defined contribution plan that provides an employer-paid match of up to five percent of salary. Alternative B also requires that no benefit exceeding $40,000 per year can be paid, (this dollar amount would be adjusted two percent annually) and that no benefits will be paid while a retiree is also receiving a salary from a state or local government employer.
Neither proposal changes benefits for current retirees or medical and retirement benefits for current employees.
CSAC will keep you apprised of the status of these proposals.