Gov. Brown signs California pension reform bill

LOS ANGELES — Gov. Jerry Brown on Wednesday signed into law sweeping pension changes that will save California taxpayers billions of dollars in the future and aims to reform a system that is woefully underfunded.

Brown praised lawmakers on both sides of the aisle for reaching a deal that will increase the retirement age for new employees depending on their job, cap the annual payout at $132,120, eliminate numerous abuses of the system and require workers who are not contributing half of their retirement costs to pay more.

“These are hard fought. These aren’t that easy,” Brown said holding up the bills after he signed them at his office in Los Angeles.

California legislators have had trouble repairing the state’s two main pension funds — the California Public Employees’ Retirement System and the California State Teachers’ Retirement System — that are at least $165 billion underfunded.

Calling it the biggest rollback to public pension benefits in the state’s history, the legislation falls short of the 12-point proposal Brown offered last October. Many Republican lawmakers supported the changes but said much more needs to be done to fix a system with massive liabilities for current retirees and workers.

Brown likened the state’s pension reform to turning around a battleship in the ocean. He believes the legislation will pave the way for more comprehensive reform in the future.

“Yes, it’s not everything. It’s not perfection,” Brown said. “But in politics we don’t deal in perfection.”

The bill does not include a hybrid system that includes a 401(k)-style plan so public employees would bear some of the investment risk, as private-sector workers do. Nothing was done to reduce skyrocketing health care costs promised to current workers when they retire. And there will be no independent members with financial expertise on the board of the state’s main pension fund.

The changes affect the state and most local governments, many of which participate in the state’s pension programs. CalPERS estimates the fund will save between $42 billion and $55 billion over 30 years while CalSTRS pegged its savings at $22.7 billion over 30 years.

While new employees starting Jan. 1, 2013, would automatically have to contribute 50 percent of their pension costs, local government labor unions will have a five-year window to negotiate that through collective bargaining.

If no deal is reached by Jan, 1, 2018, a city or school district could force employees to pay their half, up to 8 percent of pay for civil workers and 11 percent or 12 percent for public safety workers.

Most state workers already contribute half of their pension costs. Democrats included language that would raise contribution rates for about 75,000 state workers, including park rangers, game wardens and firefighters, to bring them up to the 50 percent level over the next two years.

Union leaders, however, were angered by what they saw as a violation of collective bargaining rights. The reforms for new employees include raising the higher retirement age for full benefits.

But CalPERS board member Dan Dunmoyer said both the public and private sector will benefit from the new law.

“It is a win for the public sector because the new law will take positive steps to ensure we can keep our commitment to our new public servants for decades to come and a win for the private sector as a better funded pension systems will result in less pressure to raise taxes and reduce support for much need education and infrastructure projects,” Dunmoyer said.

Moody’s Investors Service on Monday said the legislation boosts the credit outlook for state and local governments participating in CalPERS. The agency currently give California an A1 rating with a stable outlook.