Sweeping Pension Reform Becomes California Law

LOS ANGELES (CN) - California Gov. Jerry Brown signed into law a bill that forces public employees to fund half of their own pensions, a move he says will save billions of taxpayer dollars.

Brown called AB 340 "the biggest rollback" to the Public Employees' Retirement System (PERS) in the history of California pensions.

"We're lowering benefits to what they were before I was governor the first time [in 1974] and reducing costs by up to $55 billion in PERS and billions more in other local pension systems," Brown said. "Under the new rules, employers and employees alike are going to contribute their fair share of the costs, resulting in a more sustainable system."

Brown reached the agreement with Democratic lawmakers last month, in the waning hours of the two-year legislative session. In addition to the rollbacks and having state employees fund 50 percent of their own retirements, the new law ends abusive practices that enhance pension payouts.

Recently, several state agencies have been rocked by scandals involving "spiking" - giving employees big raises during their last year of employment to inflate their pensions - and "air time," which allows state employees to pad their retirement benefits by buying service time.

The law signed Wednesday bans both of those practices, Brown said.

Local and county governments can also reform pension plans, since the law eliminates state-imposed barriers that have prevented them from increasing employee contributions.

Assembly Speaker John Perez said this will save local agencies up to $70 billion.

"I am very proud of my colleagues for their hard work to achieve these historic, bipartisan reforms," Perez said in a statement. "These are meaningful reforms that address one of the biggest long-term challenges facing California, and I believe this is a major victory for the people of our state."

Darrell Steinberg, the president pro Tempore of the state Senate, echoed this sentiment.

"Until recently, pension reform was defined by ending the system's abuses. The reforms we have accomplished do just that but we also ventured significantly further," Steinberg said in a statement. "Some say that it is far too much and others say that it is not enough but this much is undeniable: the result is a fair and defined middle-class retirement package that goes a great distance toward protecting taxpayers and the fiscal health of our pension systems."

Moody's Investors Service weighed in on the Golden State's pension reform law earlier this week, saying that it boosts the credit outlook for state and local governments that participate in CalPERS. Moody's currently rates California A1 with a "stable" outlook.

CalSTRS - the state teachers' retirement fund - and CalPERS are currently underfunded to the tune of at least $165 billion. CalPERS estimates the new law will save between $42 billion and $55 billion while CalSTRS guesses a $23 billion savings over 30 years.

But not everyone is happy with the news. California School Employees Association President Allan Clark told the San Jose-Mercury News that the new law will "undermine California's middle class and strike a blow to the economy when we can least afford it."

"The plan contains only cuts and take-aways, asserts unprecedented authority in circumventing the collective bargaining process and raises the retirement age for public workers in irrational and potentially dangerous ways," Clark said, according to the San Jose-Mercury. "It will irreparably harm our most valued public servants - teachers, firefighters, police officers, trash collectors, emergency services dispatchers and others."

"The truth is that the sky is not falling," he added. "California's public employee retirement system is sound, generates a healthy profit, and represents a small fraction of the state's budget."

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