There has been an agreement on pension reform legislation that Gov. Jerry Brown announced in Sacramento. The reforms have three main features which place a cap on future pensions, stop pension spiking abuses and increase the retirement age. The proposed changes would apply to all new state and local government workers employed after Jan 1, 2012. In the proposed reforms, the plan would cap all salaries that are pensionable at $110,000. Therefore, under the new structure no one would be eligible for a pension exceeding $100,000. The top level pension would, therefore, be $77,000 which is attainable by someone with over 35 years of service.
The other essential feature is that, it aims at reducing the percentage of salary that each retiree would receive for each year of service, and increase the age at which an employee retires across the board. For example, local police and fire employees would receive a pension of 2.7 percent of salary times the number of years of service at the age of 57. This is a shift from a pension of 3 percent of salary times the number of years of service at the age of 50. Therefore, the retirement age has moved from 50 to 52 years and the earning has decreased from 3 percent of salary to 2.7 percent of salary times the years of service. This was a move established to ensure that pensions are sustainable in the future, and are affordable to state and local agencies.
The current Public Employee Pension Systems has three main state pension systems; the Public Employees’ Retirement System, the University of California Retirement Plan and the State Teachers’ Retirement System. There are 14 different formulas used in the calculation of the retirement benefits for the Public Employee Pension System. Retirement benefits depend on age, final compensation, years of service and different benefit formulas used. The current pension systems can be manipulated to the benefit of those in control. It puts the retirement age for public workers at 50 years. Statutes together with collective bargain agreement determine the member contribution rates. This has put much pressure on employers thus increasing their contribution rates.
I agree with Brown that the reforms require sacrifice from public employees. Moreover, it is a significant move in ensuring sustainability of pension. It is also a step ahead in ensuring that there are no individuals who are manipulating and controlling the system for their own benefit. It will save billions over decades in pension cuts. However, a number of drawbacks exist in the proposed reforms. By increasing the age requirements, there are employees who will be clinging to work even though they are not physically fit to carry out those duties. It might also have a negative impact in terms of attracting qualified people to lead in service considering the amount of compensation they would earn in retirement. This is due to the proposal that would lead to putting a cap on salaries. The reforms are going to be a relief to employers but an attack to public employees.
Other elements of the plan are anti-spiking measures, double-dipping, felony forfeiture and the end of “airtime”. Anti-spiking measures insist that calculation of pension should be based on the average annual compensation over a three period. Compensation refers to as the normal rate of recurring paying which excludes bonuses, unplanned overtime or payouts for unused sick leave and vacation time. Double dipping aims at restricting retired, non-safety employees to wait for six months before going back to work as retiree, but would be limited to work for not more than 120 days in a year. Felony forfeiture will ensure that public employees are to forfeit pension benefits of those charged of a felony while doing official duties. The end of “airtime” terminates the ability of public employees to buy service time.