SACRAMENTO (AP) — A California watchdog agency on Thursday called on the governor and Legislature to freeze pension benefits for current state and local government workers and overhaul the existing system, as the debate over retirement benefits for public employees has exploded nationwide.
As the Little Hoover Commission unanimously approved its report, it also recommended the state move from a defined benefits plan to a hybrid model that would include something similar to the 401(k) plans offered to most private-sector employees.
The commission, which includes lawmakers and political appointees, agreed that California’s 85 public pension systems need more flexibility and oversight because retirement costs have been growing as tax revenues have plunged. Pension costs for retired public workers now account for about 7 percent of the state’s general fund expenditures, according to the nonpartisan Legislative Analyst’s Office, which also recommended the state convert to a hybrid plan.
Commissioners acknowledged that such a change likely would face legal challenges but said the state has no choice given that pension plans are dangerously underfunded because of overly generous benefits granted in years past. If the governor and lawmakers do not address the problem, it will force cities and counties to severely reduce services and lay off employees.
California had at least $115 billion in unfunded pension obligations as of June 30, 2009, according to the latest figures available from the California Public Employees Retirement System. Unfunded state retiree health care costs were nearly $52 billion, according to the state controller’s office.
“While recognizing the legal challenges, this is a path that the state has no choice but to pursue,” wrote Daniel Hancock, chairman of the Little Hoover Commission. “Public agencies must have the flexibility and authority to freeze accrued pension benefits for current workers, and make changes to pension formulas going forward to protect state and local public employees and the public good.”
The commission suggested the state address public employee pension costs before they become unsustainable.
Bruce Blanning, executive director of the Professional Engineers in California Government, which represents 13,000 state engineers and professionals, said the courts already have determined it is illegal to reduce future pension benefits already promised to current workers.
“All surveys show that public servants are paid less than their private-sector counterparts,” Blanning said in a statement. “The Legislature and governor should direct their focus to legitimate savings rather than illegally violating long-standing commitments to those who serve the public.”
Evan Westrup, a spokesman for Gov. Jerry Brown, declined to comment on the report, saying the Democratic administration was still reviewing it. While Brown has echoed many of the ideas included in the report, he has proposed working out the changes through negotiations with labor unions to avoid questions about the legality of such changes.
Brown supports a two-tiered system in which newer employees receive lesser benefits than current employees. He also favors increasing contributions from government workers at all levels and stopping pension spiking, a practice that inflates pensions by giving raises in employees’ final years of service.
The report recommended all those changes. In addition, it suggested capping the annual salary that could be used to calculate pension benefits at a maximum of $90,000 and banning retroactive pension increases.
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