SAN FRANCISCO (Reuters) — California Governor Jerry Brown recently unveiled a major overhaul of the pension plan for the state's public employees, proposing they equally share the cost of pension contributions and raising the retirement plan for most new workers to 67 from 55.
Brown said his plan would save taxpayers billions of dollars over the long term and close loopholes that allow workers to inflate pensions.
Pension costs have been a growing concern for state leaders due to forecasts of their burden on California's already strained finances.
"It's time to fix our pension systems so that they are fair and sustainable over a long time horizon," Brown, a Democrat, said in a statement.
Leaders of the Democrat-controlled legislature responded cautiously to the plan. Public employee unions, whose members have already been hit with layoffs, furloughs and a hiring freeze as California has reined in spending, reacted negatively.
Under the plan, which now goes to lawmakers, all new and current employees in state, local, school and other public agencies would have to equally share with their employers contributions to retirement plans.
Brown also proposed changing the existing defined benefit (DB) pension plan — under which retirees receive a guaranteed amount of money per month for life — for a hybrid plan with a reduced defined benefit component paired with a defined contribution component.
The combined approach would provide employees 75 per cent of salary based on a full career of 30 years for safety employees and 35 years for nonsafety employees. The two components of the plan would provide roughly equal benefits.
For state workers who are not covered by U.S. Social Security, defined benefits would make up two-thirds of targeted pension payouts and defined contribution payments would make up the remaining one-third.
Brown also proposed restructuring the board of the California Public Employees' Retirement System, the biggest U.S. public pension fund.
"In the past, the lack of independence and financial sophistication on public retirement boards has contributed to unaffordable pension benefit increases," Brown said.