California proposal for pension reform

[MichaelB]

Lots of interest here on pension reform, so I thought members would be interested. Califormia Governor Brown just submitted a proposal to the state legislature to reform State pensions (see here) .

The plan highlights are:

1. Equal Sharing of Pension Costs: All Employees and Employers
2. Hybrid Risk-Sharing Pension Plan: New Employees
3. Increase Retirement Ages: New Employees
4. Require Three-Year Final Compensation to Stop Spiking: New Employees
5. Calculate Benefits Based on Regular, Recurring Pay to Stop Spiking: New Employees
6. Limit Post-Retirement Employment: All Employees
7. Felons Forfeit Pension Benefits: All Employees
8. Prohibit Retroactive Pension Increases: All Employees
9. Prohibit Pension Holidays: All Employees and Employers
10. Prohibit Purchases of Service Credit: All Employees
11. Increase Pension Board Independence and Expertise
12. Reduce Retiree Health Care Costs: State Employees

There are no financial details, but it does say (here)

When fully implemented, these reforms will cut roughly in half the cost to taxpayers for providing pension benefits for state employees.

 

[youbet]

Seems like a good start........ At least it hits some of the biggies: spiking and post retirement re-employment in the same job (double dipping). The plan for new employees in Illinois which became effective 1-1-2011 hits these areas as well. But Illinois' also implemented new rules for current employees to help with spiking issues. I'm suprised that Gov Brown went with spiking conrols applying only to future hires.

 

[MichaelB]

Seems like a good start........ At least it hits some of the biggies: spiking and post retirement re-employment in the same job (double dipping). The plan for new employees in Illinois which became effective 1-1-2011 hits these areas as well. But Illinois' also implemented new rules for current employees to help with spiking issues. I'm suprised that Gov Brown went with spiking conrols applying only to future hires.

My first thought as well was to wonder why ending salary spiking was limited to new employees. It seems to be an action item that generates lots of broad, non-partisan agreement.

 

[dgoldenz]

Spiking pension salaries is one of the most ridiculous abuses of the system I can think of.

 

[youbet]

MichaelB:

I think I smell a typo, or at least a misunderstanding. This is from the actual document you included the reference to. Doesn't it sound like Brown wants the 3 year salary period for determining pension amounts to apply to all state employees despite the fact that it's labled "New Employees?" It sounds like some current employees have the three-year rule and others don't. He wants it to apply to everyone.

The State Of Calif employee who wrote the document and whoever edited it may have goofed when they tagged it with the "New Employees" label.

4. Require Three-Year Final Compensation to Stop Spiking: New Employees

Pension benefits for some public employees are still calculated based on a single year of "final compensation." That one-year rule encourages games and gimmicks in the last year of employment that artificially increase the compensation used to determine pension benefits. My plan will require that final compensation be defined, as it is now for new state employees, as the highest average annual compensation over a three-year period.

 

[flyfishnevada]

As a defined benefit pensioner from a neighboring state, I think most of it is a good idea. Employee contributions are fair. Sure, it seems like six of one half dozen of the other, you pay part yourself and get a bigger pay check, contribute none and get a small paycheck, but I doubt it works that way. You contribute nothing and get a big pay check, overtime, and have all kinds of options to spike your pension. I got none of that. I paid half, overtime didn't count, pension was based on highest three years and made a fair wage, even a little low when compared with city, country and private employees.

I like the shared risk. I would have liked to be able to control some of my retirement funds. I don't know if I could have done any better, but at least I'd have control.

Retirement age is something I agree with. I retired at 43 with a full pension (please save the rants, I've heard them all) I bought 5 years of service for less than a year's salary and less the 20% of my final annual salary because I did it so young. Even I can say that's a little crazy. As long as they aren't changing the rules on existing employees, then it seems reasonable. No fair telling some like me 20 years in that they suddenly can't retire until they are 55, 62 or 67.

Crazy that any state would not already have these things. I guess reasonable responsible people don't do a lot of lobbying.

 

[Chuckanut]

I can see why the California state pension system needs to be tightened up. Compared to my state's system it is more generous.

Full retirement at 63 - my state says 65
Early retirement at 50 - my state says 55 (with a big reduction in benefits of course)
Three year average to reduce spiking - my state already says 5 years
new Hybrid risk sharing plan - my state has had that for almost 20 years

I guess I have been working in the wrong state, except that my plain is very secure compared to California's. 99% funded.

 

[GregLee]

MichaelB:

I think I smell a typo, or at least a misunderstanding. This is from the actual document you included the reference to. Doesn't it sound like Brown wants the 3 year salary period for determining pension amounts to apply to all state employees despite the fact that it's labled "New Employees?"

I interpret the document to mean there is no change to current policy here. For new employees, final salary for the pension calculation was already determined from the last 3 years, and that's what will be done, henceforth. Then why say anything about it at all if there is to be no change? The new policy would be criticized if it did nothing about spiking, so that has to be covered. (It's probably not legal to change it for those already employed or retired.)

 

[Mulligan]

As a pensioner myself, I find the reforms reasonable, in fact, many are already in place in my system. I agree with the one year spiking and drawing benefits on that. Not only is it outrageous, but how could an accurate actuarial determination of properly funding the system ever occur under that abuse?

 

[utrecht]

This might sound strange coming from a cop, but I think forfeiting your pension due to being convicted of a felony is not a good idea. Why should someone be penalized what could amount to $100,000's or even a million or more over a lifetime due to a felony conviction. That seems like an extreme punishment that relatively few people would be subject to. Bill Gates pays $5000 fine for a felony DWI but Joe Blow Civil Servant pays a million in lost pension?

 

[samclem]

This might sound strange coming from a cop, but I think forfeiting your pension due to being convicted of a felony is not a good idea. Why should someone be penalized what could amount to $100,000's or even a million or more over a lifetime due to a felony conviction. That seems like an extreme punishment that relatively few people would be subject to. Bill Gates pays $5000 fine for a felony DWI but Joe Blow Civil Servant pays a million in lost pension?

I was concerned about this too, but the document provided by Michael in the OP clarifies the situation. It's only for those who have committed a felony while performing their official duties. They lose the retirement pay credited for that period of their service when they were committing crimes. Seems entirely fair to me.

The military can do the same thing. When someone is found to have broken the (significant) regulations, a board can be convened to determine the rank at which they last served honorably. That's the rank upon which their retired pay is based. It doesn't happen often, but it's a useful tool to have available.

 

[Chuckanut]

Spiking is certainly not within any spirit of fairness that I can think of at the moment. I am all for workers getting what they have earned over the years, but spiking does not fall into that category, IMHO.

 

[Spanky]

When fully implemented, these reforms will cut roughly in half the cost to taxpayers for providing pension benefits for state employees.

Why are taxpayers still on hook for proving pensions for them?
http://statehousenewsonline.com/201...a-show-taxpayers-still-on-hook-for-trillions/

 

[Chuckanut]

Why are taxpayers still on hook for proving pensions for them?

I don't know. Why are taxpayers on the hook for maintaining roads? providing schools? paying SS benefits?, National Parks? Police and Fire proctection? Can't people contract for these things themselves??

In fact, why not get these public servants to work for nothing? What's so bad about involuntary servitude when the taxpayers benefit by getting government on the cheap? Sounds like a plan to me.

 

[Nords]

Does this proposal mean that military veterans would no longer be able to "buy" their military service toward the state civil-service retirement system? I thought the states were giving vets hiring preferences.

The military can do the same thing. When someone is found to have broken the (significant) regulations, a board can be convened to determine the rank at which they last served honorably. That's the rank upon which their retired pay is based. It doesn't happen often, but it's a useful tool to have available.

About 15 years ago we had a retired E-8 submariner dealing drugs in Waikiki. HPD was so pissed off at the guy that they actually turned him over to the military, who recalled him to active duty expressly for the purpose of taking away his pension & benefits before giving him a govt-sponsored all-expenses-paid transfer to Fort Leavenworth.

At that point the military prison was probably a good idea to get him far away from the clutches of the Fleet Reserve's Old Goat Network, who would've gone vigilante on one of their own.

HPD's commentary was along the lines of "We can hurt him some, but you can hurt him worse!"

 

[Spanky]

I don't know. Why are taxpayers on the hook for maintaining roads? providing schools? paying SS benefits?, National Parks? Police and Fire proctection?

Because taxpayers use those services and facilities. Not so sure about SS benefits and entitlement programs.

 

[samclem]

Spiking is certainly not within any spirit of fairness that I can think of at the moment. I am all for workers getting what they have earned over the years, but spiking does not fall into that category, IMHO.

Of course, it's not called "spiking" in the labor contracts and other guidelines now in place. Those guidelines just say, for instance, that the retirement pay will be computed based on the compensation received by the employee for his/her final year. Spiking--working lots of extra hours, overtime, cashing in vacation days, etc during the last year--is the result. So, to eliminate spiking we have to increase the "averaging" period, exclude compensation other than the "regular" pay received for the first 40 hours of work per week, etc. All of that changes the rules for those who are now employed. Lots of people get legitimate raises during their last three years, new rules that use the average of the highest 36 months of pay rather than the highest 12 months is a de facto retirement pay cut for present employees.
I think averaging over the highest 36 months is the right policy.

 

[Spanky]

I think averaging over the highest 36 months is the right policy.

Why stop at 3 years?

 

[samclem]

Why stop at 3 years?

Okay, base it on their first year of service. And take away their birthday.

 

[youbet]

I interpret the document to mean there is no change to current policy here. For new employees, final salary for the pension calculation was already determined from the last 3 years, and that's what will be done, henceforth. Then why say anything about it at all if there is to be no change? The new policy would be criticized if it did nothing about spiking, so that has to be covered. (It's probably not legal to change it for those already employed or retired.)

Perhaps. It's not completely clear. But I'm interpreting Brown's statement as saying that all employees would be subject to the three year averaging rule if the new plan is adopted.

 

[kyounge1956]

In addition to the elimination of spiking, I applaud the prohibition of pension holidays.

 

[MichaelB]

MichaelB:

I think I smell a typo, or at least a misunderstanding. This is from the actual document you included the reference to. Doesn't it sound like Brown wants the 3 year salary period for determining pension amounts to apply to all state employees despite the fact that it's labled "New Employees?" It sounds like some current employees have the three-year rule and others don't. He wants it to apply to everyone.

The State Of Calif employee who wrote the document and whoever edited it may have goofed when they tagged it with the "New Employees" label.

I cut and pasted. Yes, he wants to take the rule that already applies to new and use it with all.

Pension benefits for some public employees are still calculated based on a single year of “final compensation.” That one-year rule encourages games and gimmicks in the last year of employment that artificially increase the compensation used to determine pension benefits. My plan will require that final compensation be defined, as it is now for new state employees, as the highest average annual compensation over a three-year period.

pretty clear to me that he wants everyone subject to three years salary average

 

[utrecht]

Why not just base the pension on the final 3 years BASE salary, with no overtime or other add-ons allowed? That's the way my pension works, and again, one of the many reasons why its in good financial shape as opposed to these other scams they refer to as pension plans.

What is a pension holiday?

 

[MichaelB]

What is a pension holiday?

When the employer decides there are enough assets in the plan so they don't have to make this year's contribution. This usually happens when some of the assets are invested in equities, they look right after a nice run up in stock prices and say "plan is overfunded so we don't have to make this year's contribution. Let's go spend it somewhere else".

 

[donheff]

I cut and pasted. Yes, he wants to take the rule that already applies to new and use it with all. pretty clear to me that he wants everyone subject to three years salary average

I read it as applying the state employee rule to schools and other institutions covered by the law. But since the changes for state employees appear by the description to cover "new" state employees it sounds to me like the proposal will simply cover all new employees. It does seem strange that they wouldn't extend the changes on spiking (and overtime) to all employees -- or, if there is concern that would be unfair to employees near retirement, then phase it in for current employees.

All in all sounds like a serious proposal. I am glad to see they are not going overboard by pulling the rug out from under long term employees.