Pension rollbacks part of proposed California budget

Pension rollbacks part of proposed California budget

Sacramento Bee Oct. 8, 2010

State workers hired in mid-November and later will have to wait longer to get their pensions – and those pensions will be smaller – under terms of the budget bill lawmakers plan to vote on today.

The "second tier" retirement plan would affect employees hired on or after Nov. 10 and whose unions don't have a different retirement contract with the state.

The deals Gov. Arnold Schwarzenegger cut earlier this year with six of the state's 21 bargaining units had variations of second-tier retirement plans for new hires, but all increased the retirement age and the employees' contributions to the system.

The budget deal on the table essentially rolls back Senate Bill 400, a much-criticized measure that increased state employee pensions in 1999.

If enacted, the changes would mark a win for Schwarzenegger, who has made pension change a prerequisite to his signature on any budget deal.

Many state worker unions initially blasted the idea, but over the summer six labor groups representing 37,000 employees ultimately negotiated contracts with pension concessions.

Other unions, including the 95,000-member SEIU Local 1000, have been in contract talks with the administration. Pension rollbacks for new hires have been part of the discussion.

The pension formula for about two-thirds of the state work force – those in the so-called miscellaneous category – allows an employee to retire at age 55 with an annual pension equal to 2 percent of the three-year average of their highest pay multiplied by their years of service.

The formula incrementally increases to 2.5 percent at 63.

The proposed formula lawmakers will consider would increase the earliest retirement age to 60 at 2 percent, with 2.418 percent at age 63.

Under the current formula, an employee with 30 years on the job who retires at 63 with an average pay of $60,000 receives a $45,000 annual pension.

That same employee hired on Nov. 10 or later would receive $43,524 a year.

Peace officers, including correctional officers working in California's prison system, would see new-hire pensions rolled back from the current 3 percent at 50 to 2.5 percent at 55. New safety workers would be eligible for 2 percent at 55 instead of the current 2.5 percent at 55.

The budget proposal also requires all state employee pensions calculated using a three-year pay average instead of the single highest year to keep workers from "spiking" their retirement by running up their pay in their final year. Most state worker contracts already contain this provision.

The measure would also require more analysis and oversight of the long-term investment and payout assumptions made by the state's largest pension fund, the California Public Employees' Retirement System.