« CalPERS boosts cost of terminating pension plansCalPERS: a 112th green, social, corporate policy »Pension reform: easier said than done
A bill for a public pension reform advocated by Gov. Brown, and a commission appointed by former Gov. Schwarzenegger, has a labor sponsor, no formal opposition and therefore smooth sailing in the Legislature, right?
Not exactly.
The bill preventing CalPERS and county systems from lowering employer contributions when investment earnings are booming, and instead put excess money in a “rainy-day” reserve, shows how reform can be technically and politically complex.
Much pension reform legislation this year is scandal driven, responding to big salaries in the city of Bell, pay-to-play investment corruption at CalPERS and the boosting or “spiking” of pensions, notably by two Contra Costa fire chiefs.
Some of the bills are being watered down or delayed until next year — among them an anti-spiking measure, SB 27, that the California State Teachers Retirement System wants to change.
One of the few bills dealing with the big issue, pension funding, is the limit or ban on employer contribution “holidays” sponsored by the California Professional Firefighters, AB 1320 by Assemblyman Michael Allen, D-Santa Rosa.
“AB 1320 will ultimately safeguard against any sudden increases in employer contribution rates, thereby providing budget stability and sustainability,” said the firefighter group.
The bill is an expression of faith that the pension funds, now often only 60 to 70 percent funded, will one day return to financial health, despite dire predictions from reform advocates who urge major restructuring.
A provision in the original version of the bill also is a nod to the labor sponsors. The “rainy-day” reserve, if times were really flush, could be used to lower the pension contributions of employees.
The goal is a reserve to help government employers pay higher pension contributions when investment earnings falter, avoiding rate shock. CalPERS dropped employer rates to zero or thereabouts in the late 1990s during a stock market boom.
A state CalPERS payment that had been $1.2 billion dropped to about $150 million (as CalPERS sponsored a 50 percent pension increase, SB 400 in 1999). By 2005 the state rate had soared to $2.5 billion.
Schwarzenegger cited the dramatic five-year increase as he briefly backed a proposal in 2005 to switch new state and local government employees to a 401(k)-style individual investment plan.
An extreme example is the University of California Retirement Plan. The UC system, not included in the firefighters’ bill, went without contributions for two decades, getting by on investment earnings before payments resumed last year.
A UC staff report said the system, now planning to phase in a major contribution increase for employers and employees, would have been about 120 percent funded last year if normal contributions had continued since 1990.
