New California state and local government employees would be covered under a hybrid pension program under a proposal announced by Gov.Brown.
The proposal would create a pension plan with elements of defined benefit and defined contribution plans and would also raise to 67 the retirement age for new government employees.
The normal retirement age for state and local government employees is 60, though some can retire as early as 55 with full benefits.
Mr. Brown said in a speech at the statehouse in Sacramento that the plan would save the state about $0.900 billion a year and that similar savings could be achieved by municipalities.
Mr. Brown’s plan does not address funding shortages at the $146.6 billion California State Teachers’ Retirement System in West Sacramento, which is scheduled to run out of money by 2045 unless contributions are increased to the system. Any contribution increases would have to be approved by the Legislature. The $225.7 billion California Public Employees’ Retirement System in Sacramento, has the power to set its own contribution rates.
Under Mr. Brown’s plan, newly hired public safety workers would be exempt from the new retirement age of 67 and the hybrid pension program. The governor said a study will be performed to determine what the proper retirement age is for public safety employees.
Portions of Mr. Brown’s plan, such as provisions applying to workers in municipalities across the state, would need voter approval in addition to passage by the Legislature.
Another part that voters would have to endorse would be a plan by the governor to add two independent, public members with financial expertise to the CalPERS board.
There are too few details here to be certain, but governor’s concept is precisely what every state with pension problems could be implementing.
Most long-term state/local employees are not (and cannot be) covered by Social Security, so their ONLY source of retirement income is government plan(s). Like private-sector employees, they need a defined benefit (i.e., “guaranteed”) plan to replace a portion of their income up to $50,000 or $60,000; as for the portion of (some employees’) income ABOVE that amount, states with big pension liabilities can probably reasonably ask them to use a 401(k), 403(b) or other defined contribution plan (where the employee bears the investment risk) to replace a portion of THAT income in retirement.
The key point is that NO state should ask that ALL of a state employee’s retirement income be based on a 401(k) or other defined contribution plan; that would be a much WORSE deal than private corporations have forced on their employees over the past thirty years.