Hollingsworth's sensible pension reform

Sen. Dennis Hollingsworth, R-Murrieta, is introducing tomorrow important pension reform legislation, SB919. I’ve given it a quick perusal and this looks like a solid, serious plan — the sort of thing the state must embrace if it hopes to tackle the half-trillion-dollar pension liability caused by excessive pension benefits for government employees. Public employees would still have fabulous benefits if SB919 passes, but the legislation would reign in the excesses. The Hollingsworth plan also reduces health-care benefit costs. The unions will go bonkers, but it’s time to put these types of ideas on the table. CalWatchdog will cover this tomorrow, but here is the senator’s fact sheet:

THE PROBLEM:  For far too long, taxpayers have footed the bill for overly generous retirement benefits for state workers.  In the last ten years, the cost to the taxpayers for public employee retirement benefits has increased by 2000% from $150 million per year to over $3 billion.  These escalating costs have been the result of both increases in pension benefits lobbied by labor unions, as well as a down-turn in the stock market.  Now, faced with an unprecedented fiscal crisis and record-high unemployment, the state needs to take bold action to bring state employee retirement pension and health care costs under control.

The state significantly expanded benefit levels in 1999 and again in 2002, enhancing average monthly compensation formulas, providing cost of living retirement allowance increases for state and school retirees who retired prior to 1998, and expanding the definition of the State Safety  retirement category to include many non-safety classifications (such as billboard inspectors and milk inspectors). 

THIS BILL:  SB 919 seeks to realign public employee benefits so they are closer to their private sector counterparts.  This comprehensive reform package would apply to new employees hired following enactment of the bill and is estimated to save $110 billion in reduced pension payouts over 30 years ¹.  SB 919 includes the following major reforms:

—   Reduces the retirement formula for non-public safety employees by requiring them to work 10 years longer before being eligible for full retirement benefits at age 65.

 —  Requires public safety employees, including CHP, firefighters, correctional officers, and other peace officers to work 7 years longer in order to qualify for full retirement benefits at age 57. 

 —   Changes the final compensation calculation to take into account the highest 3 years of wages instead of the highest 1 year.

 —   Ends state safety retirement benefits for milk inspectors, billboard inspectors, etc. and returns them to Pre-SB 183 Miscellaneous/Industrial classification.

 —   Increases the amounts that employees must contribute toward their retirement by eliminating the exemption threshold.  Currently, the first $200 to $800 of an employee’s wages is exempted from the employee’s calculation for retirement contribution.  This bill eliminates that exemption amount increasing contributions to CalPERS, resulting in an estimated $2 billion in cost savings through 2040. 

 Below is a chart that shows the current and proposed formulas for various retirement categories. 

Retirement Category	Current Retirement Formulas	Proposed Retirement Formulas
Miscellaneous – First Tier	2% at Age 55	2% at Age 65
Miscellaneous – Second Tier	1.25% at Age 65	.5% at Age 65
Industrial	2% at Age 55	2% at Age 65
State Safety (Pre-SB183)	2.5% at age 55	2% at Age 62
Peace Officer	3% at Age 50	2.7% at Age 57
Firefighter	3% at Age 50	2.7% at Age 57
Highway Patrol	3% at Age 50	2.7% at Age 57
Peace Officer/Firefighter CSU, Legislature, Judicial	3% at Age 50	2.5% at Age 57
CSU Police	3% at Age 50	2.5% at Age 57

 SB 919 also proposes to make the following changes to the state’s health benefit program:

 —     Provides the state with the authority to purchase health care from a provider other than CalPERS, thereby allowing the state the flexibility to determine health plans and premium levels that are more cost effective.  This would save approximately $300 million annually with a growth rate of three percent.

 —    Requires state employees to work for 25 years (5 years longer than current law) in order to be fully vested for retirement health care benefits.  This would result in an estimated $49 billion reduction to the state’s accrued actuarial liability through 2040.

 —    Reduces the state’s contribution toward a retiree’s health care costs from 100 percent of the average HMO cost, to about 85 percent to match contributions made for currently active employees. This would result in an estimated $19 billion reduction to the state’s accrued actuarial liability through 2040.

 —     Allows governmental agencies that contract with CalPERS for health benefits to negotiate a lower level of employer health care contribution for new hires.

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–Steven Greenhut