Gov. Brown Proposes Major Pension Reform

Yesterday, Gov. Brown proposed major pension reform plan for state employees.

The Sac Bee has the complete story: Pension Reform.

This proposal would require a Constitutional Amendment (a ballot measure) in order to pass. If the measure was approved by voters, existing Union contracts would be protected until they expire.

Governor’s Proposed Pension Language - Summary of changes:

1. Article VII, Sec. 12, sub (a) - Every public retirement system will be required to provide one or more hybrid pension plans. (The plan will be mandatory for new hires pursuant to this section [Article VII, Sec. 12 sub (a), par (3)]. “A public employer shall offer to its public employees first hired on and after July 1, 2013, only a hybrid pension plan…”)

2. Article VII, Sec 12, sub (a), par (1) – designed with goal of – DB + DC (or other alternative plan component – like cash balance) + SS = 75% income replacement., base on a full career (defined in this constitutional provision as 30 years with NRA of 57 for public safety and 35 years of service with NRA of 67 for misc employees). The plan must be designed to limit the cumulative value of the three components (or two, if the employee is not in Social Security) to not exceed the earnings cap for Social Security – $110,100 or 120% of that amount for public safety - - $132,120 (the previous amount had been static for 3 years, 2012 figure noted here, reflects an increase)

3. Article VII, Sec 12, sub (a), par (2) – Requires DOF to establish the initial criteria for the hybrid plan. Exempts DOF from existing regulatory rulemaking procedures (APA).

4. Article VII, Sec 12, sub (a), par (3) – (also referenced above in #1) – hybrid plan(s) must be offered on and after 7-1-2013. Allows for retirement system to offer an alternative as long as it is determined and certified by chief actuary and the system board to have LESS risk and LOWER costs to the employer than the DOF plan.

5. Article VII, Sec 12, sub (a), par (4) – allows a court action preventing implementation, to be filed against the system actuary, the retirement board, the system and the employer by anyone (resident, corporation, anyone liable to pay, taxpayer within the boundaries of the public employer) if the alternative plan is NOT less risky and less costly to the employer.

6. Article VII, Sec 12, sub (a), par (5) – requires that the hybrid plan be made available to employees hired prior to 7-1—2013.

7. Article VII, Sec 12, sub (b) – these provisions are applicable to new hires (after 1-1-2013):

a. par (1) – 3 year final comp period, final comp excludes bonuses, unplanned OT or payments for unused sick leave or vacation

b. par (2) – minimum 5 years of service to qualify for service retirement, min retirement age – 52 for safety, 57 for non-safety, indexed to SS (if they go up, these go up)

8. Article VII, Sec 12, sub (c) – these provisions are applicable to all employees to the fullest extent allowed under the Constitution.

a. par (1) – retroactive benefit increases are prohibited (exemptions identified in statute as classification change requires that any enhanced formula applicable to the new classification ONLY apply to service in that new classification).

b. par (2) – ER and EE must make required payments to fund normal cost

c. par (3) – employees shall contribute half the annual normal cost, ER pickup prohibited

d. par (4) – ban on “non-qualified” service retirement purchase

e. par (5) – benefits revoked where felony conviction in connection with official duties, pursuit of employment, obtaining salary or benefits. (parameters described in statute – only forfeit what was accrued since the commission of the felony)

f. par (6) – post retirement service provisions – NTE 960 hours or 120 full time days in a consecutive 12 month period. No service earned for time on public board or commission without re-instatement.

9. Article VII, Sec 12, sub (d) – references statutory definitions

10. Article VII, Sec 12, sub (e) – specifies that no provision in the constitution or the statutes restrict any disability, death or survivor benefits provided by the public employer (not the system).

11. Article VII, Sec 12, sub (f) – If the terms of an MOU in effect on 11-7-2012 are in conflict with this act, the MOU prevails UNTIL the expiration of the MOU, any renewal, extension or amendment of an MOU will be subject to this constitutional/statutory proposal.

12. Article VII, Sec 12, sub (g)(1) – increases the vote requirement to amend the statutory provisions in this measure to 2/3rds vote as long as those amendments are consistent with and further the purpose of this act.

13. Article VII, Sec 12, sub (g)(2) – any reference to statutes by this act refer to those statutes as they read on 1-1-2013.

14. AMENDS Article XVI, Sec 17, sub (f) – to eliminate the VOTE REQUIREMENT for pension board changes only as to the changes proposed in Section 20090 (in the bill that is companion to the SCA)

15. REQUIRES that the state defend the constitutionality of this act.