On Tuesday in Los Angeles, California Governor Jerry Brown announced what he called "sweeping" changes to the state pension system.
The majority of the deal affects new hires, raising retirement ages from 62 to 67 for civilian employees and 50 to 57 for public safety employees (fire and police). Annual pension payouts (annuities) will finally have a defined cap: $110,000 for most employees and cuts off at $132,000 for the rest.
For current employees, the deal gets rid of abuses that Democrats and Republicans alike have been looking to end. "Spiking" — a scheme that can unfairly raise a retiree's annuity — is over, pension enhancements can no longer be applied retroactively, and "pension holidays" (where employees and employers could skin contributions in good times) can no longer be taken.
The deal also emboldens local governments by giving them a process to lower pensions costs. It remains to be seen how exactly this will work, but according to the governor's statement posted on his website, the deal will "eliminate current restrictions that impede local employers from having their employees help pay for pension liabilities." Potentially, this bodes well for the cities whose ballooning pension costs are driving them into bankruptcy, such as Stockton and San Bernardino.
Also unclear is how much this will save the state in pension costs. Today Brown said that it will save the state $30 billion, but did not specify a timeline or reasoning. In his previous plan submitted to the Legislature — a plan that failed to gain any traction last fall — he was much more detailed, saying that his hybrid 401(k) plan would save the state $4 billion to $11 billion.
At first glance, it's impressive to see that a deal was even made, with the legislature dragging its feet all summer on the issue (this is the last week of their legislative year). Labor's influence on Sacramento is well-known, and, unsurprisingly, labor is voicing opposition to today's reforms.
But that's what makes today's news so interesting. Seemingly beholden lawmakers have made a deal that, while not courageous, does make advances in the face of dissent from their supporters.
And labor's dissent isn't really all that loud. It might be due to a trade-off happening with a quieter but equally momentous bill trying to pass this week — SB 863, which aims to overhaul the state's worker's compensation system — and the amount of behind-the-scenes influence labor is having with its formulation.
Politics aside, it's a breath of fresh air to see some level of change happening in Sacramento. Of course, the deal is still subject to a vote, but with the strong press fanfare today, it looks solid. Will this somewhat decisive action get voters to see the governor's new revenue initiative more favorably? Time will tell. But with Labor Day approaching, we're entering the final stretch in what looks to be a monumental election for California voters.