California implements major pension reforms

October 28, 2011

The Governor of California, Gerry Brown has gone ahead with pension changes. This despite the fact that he is heavily indebted to unions for his election against billionaire Meg Whitman. It is estimated that unions spent millions to get Brown elected. Ironically one of the big spenders was the California Working Families for Jerry Brown for Governor 2010.

Back to the changes .Brown proposes sweeping public pension reforms

SACRAMENTO – Gov. Jerry Brown unveiled Thursday a sweeping pension reform plan that he said would cut state costs in half by reducing benefits and increasing the retirement age from 55 to 67, of state, local government and school employees. His plan comes in response to growing concerns over six-figure benefits and enormous unfunded liabilities.

“I try to protect working people whenever I can, but I’m also responsible to taxpayers for making sure we have a solvent state government,” Brown said. “These pension reforms will go a long way towards making our pension system more sustainable and more fair.”

Studies have found that state and local pension systems face hundreds of billions of dollars in unfunded liabilities because of overly optimistic projections and overly generous benefits. The governor is trying to stem that tide by building his plan on the notion that employees should share in the burden of paying for their retirement. His proposal requires that current and new employees contribute at least 50 percent of the annual cost of their benefits. Currently, some public employees make no contributions to their retirement.

It is aggressive reform and the governor is trying to Governor aims to cut pension costs by half. The reform makes the following changes.

• establish a “hybrid risk sharing plan,” where new employees, not existing ones, would receive a third of their pension benefits from Social Security, a third from a defined benefit plan and a third from a 401(k) type defined contribution plan.

• raise the retirement age for non-safety workers from 55 to 67,

• eliminate “airtime,” a little-known perk that allows public employees to boost their retirement benefits by purchasing imaginary service credits. (Buy backs in Canada)

There is only one flaw in the plan that will turn out to be fatal. That is the changes apply only to future employees. The only requirement for existing employees is they will have to increase contributions.

It is a sweeping move that “doesn’t just apply to state workers. It also applies to employees of local governments and schools as well.”

The changes cover four out of ten recommendations we have in our new book, Pension Ponzi. These are all changes that need to apply here in Canada.

On another note it is interesting to see how quickly these changes occurred. It was just this spring that I was in Los Angeles where Jack Dean of Pension Tsunami had invited me to attend a pension reform conference. In the room were about 150 elected officials and county and municipal CFO’s from around the Los Angeles basin. They represented a population close to the size of Canada’s.

The Wall Street Journal reports that “So far in 2011, 27 state legislatures have enacted significant retirement-system changes, following 21 states in 2010,”

Bill Tufts
Fair Pensions For All

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