Sweeping Pension Changes by New Governor Could Cover UC if Regents Don’t Act

While the article below refers only to CalPERS and CalSTRS, as has been noted in prior posts, UC is in danger of having its pension system covered by some sweeping initiative that would cover all public pensions in California. A new governor takes office in early January 2011. Unless UC has a plan of its own – and unless the Regents push for UC autonomy as other statewide policies are debated – the consequences could be unfortunate.

Note part in bold italics below.

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Pension reform: Brown picks up where he left off (excerpts)

By Ed Mendel calpensions.com 7/31/10

In his last year as governor, Jerry Brown’s budget proposal said it was possible for state workers to retire at age 62 and receive more than 100 percent of their final salary from CalPERS and federal Social Security.

He proposed lower pensions for new hires, arguing that 70 percent of final salary is a “common standard” for maintaining a standard of living in retirement that is similar to the one when working.

The lower pension would result in lower annual contributions to CalPERS, savings that could be passed on to both the state and the workers. The change would have to be negotiated with labor unions and enacted through legislation…

Unlike Whitman, Brown is not advocating that new state hires, with the exception of police and firefighters, be switched from pensions to 401(k)-style individual investment plans, now common in the private sector.

But he continues to advocate negotiating a “two-tier” system giving most new state workers a lower pension formula requiring them to work longer to earn full retirement…

Like Schwarzenegger, who has tentative agreements with a half dozen unions to cut pensions, Brown would increase worker pension payments to 10 percent of their pay, up from 5 to 8 percent. The state contributes 20 percent of pay for miscellaneous workers.

Under the “2 at 55” formula a state worker with 40 years of service can retire with a CalPERS pension equal to 100 percent of pay. There is no cap, so it’s possible for a worker with more than 40 years to retire with a pension greater than final pay.

State miscellaneous workers receive Social Security in addition to their pensions. The Highway Patrol, state firefighters and others in the “safety” classification do not receive Social Security, but have more generous pensions than miscellaneous workers.

The state’s annual payment for Social Security, 6.2 percent of pay, was $639 million in fiscal 2008-09, the latest data available. Workers also contribute 6.2 percent of their pay to Social Security.

With Social Security, state retirement costs total about $7 billion this fiscal year: CalPERS $3.8 billion, California State Teachers Retirement System $1.2 billion, and retiree health $1.4 billion.

Non-teaching school employees, the largest group in CalPERS (38 percent of the 1.6 million active and retired members), receive Social Security. A long-standing issue is that teachers in CalSTRS do not receive Social Security.

Brown’s new eight-point pension reform plan does not mention combined pension and Social Security retirement pay. But the concept was a key part of a pension initiative a group unsuccessfully tried to place on the November ballot this year.

The initiative would have pushed back full retirement ages for all new workers by nearly a decade or more. For workers not in “safety“ police and fire jobs, full retirement would have been the same as Social Security, 65 to 67 depending on birth date.

The formula would have been 1.65 percent of final pay for each year served in non-safety jobs not covered by Social Security. In non-safety jobs covered by Social Security, the formula was 1.25 percent.

The president of the group sponsoring the initiative, Marcia Fritz of the California Foundation for Fiscal Responsibility, thinks Brown’s eight-point pension reform plan is a big step in the right direction.

“I like it,” Fritz said. “My board doesn’t agree with me.”

Fritz said she has been talking to a labor representative about a “hybrid” plan. Salary up to a certain level, for example $50,000 a year, could be covered by a pension. Then any part of a salary above $50,000 would be covered by a 401(k)-style plan.

“I’ve been saying, ‘If you guys don’t get on this, you could lose control,’” she said.

Fritz said Whitman, riding a wave of mistrust of government, may have an edge in the race for governor. She said the wealthy Whitman could easily finance a drive to place a pension on the ballot.

“Unions have got to know that happens if she gets in,” said Fritz.

Full article at:

http://calpensions.com/2010/07/31/pension-reform-brown-p
icks-up-where-he-left-off/