The Costs of Brown's Pension Plan... In Money and Politics

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Brown's pension plan is the Capitol's hot potato. (Photo: Getty/Max Whittaker)

For weeks, the conventional wisdom around the Capitol has been that Governor Jerry Brown's proposal to create a hybrid pension/401(k) system for future government employees faced long odds with legislative Democrats.

Now, they've got something on which to base their opposition: a study by CalPERS that suggests such a system may not be all it's cracked up to be.

The report released late Tuesday concludes that Brown's plan (at least in as much as a work-in-progress could be analyzed) would "lower retirement benefits for new employees and shift the risk from employers to employees."

To be clear, CalPERS experts caution in their 39-page report (PDF) that there are variables in their analysis that could shift the conclusions should they change. And so the report is fairly seen as a starting point for the discussion... even though it's already being pointed to by critics of Brown's plan as proof he's on the wrong track.

The analysis concludes that, in many cases, Governor Brown's plan would provide less than a 1% savings for the state when it comes to the retirement benefits of general employees. It estimates the savings to be higher (2%) for retirement benefits provided to school employees. And perhaps most notably, CalPERS' number crunchers believe Brown's pension reform plan could result in a 2.1% increase in the cost for new public safety hires (those who come in under the pension reforms of recent years and are now guaranteed less of their pay for retiring at age 55).

The real winners, according to this early look, would be local governments. The analysis says the governor's hybrid pension/401(k) plan would probably mean a larger savings for local agencies -- because their workers currently contribute less to retirement than do those who work for the state. And yes, that's why so many of the pension "outrage" stories across California are about the retirement deals being given to local government employees.

And, while not surprising (at least to those of us in the private sector), the CalPERS analysis reminds everyone that future government workers will face more risky retirement futures.

"The proposed hybrid plan is expected to result in a shifting of risk from the employer to members. The employer will see reduced risk in the form of a smaller, less volatile defined benefit plan. The member is expected to see an increase in risk given the defined contribution portion of their benefit is not guaranteed and exposed to investment volatility."

CalPERS says its report was crafted using existing assumptions about its own pension fund, including the current rate of return on its investment -- a number that, itself, is hotly debated.

The analysis was drafted for the Legislature as it considers Governor Brown's proposal (now in bill language form), and it will no doubt spark some spirited debate when the joint committee that's examining the Guv's plan reconvenes. But again, the politics here is worth nothing. After backers of a more restrictive pension reform recently decided to abandon their plans for a ballot initiative in 2012, there's some speculation that the pressure could be off of Democrats to adopt a tough change in the pension system. Democratic leaders have dismissed such speculation, but they admit that Brown's hybrid proposal is a tough sell.

The new report would seem to make that sell even tougher, perhaps, impossible... especially in an election year.

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About John Myers

John Myers is senior editor of KQED's new multimedia California Politics & Government Desk.  He has covered California politics for most of the past two decades -- serving previously as Sacramento bureau chief for KQED News and, most recently, as political editor for KXTV News10 (ABC) in Sacramento. He moderated the only gubernatorial debate of 2014, and was named one of the nation's top statehouse reporters by The Washington Post. Follow him on Twitter @johnmyers.
  • Steven Maviglio

    Most importantly, the real LOSERS here would be millions of Californians who would be forced into 401k plans that will (a) cost them more and (b) result in lower returns for their retirement. 401ks also would put billions into the hands of the very folks who are largely responsible for our economic downtown: Wall Street. The bigger picture here is designing a system that provides secure retirement for more Californians (not less), including private sector employees

  • Reilleyfam

    I’d be more concerned with paycheck protection and right to work efforts.

  • Anonymous

    The report points out that under a hybrid system, the investment risk borne by employers (which are public agencies, supported by tax revenues) is reduced.  Folks, that is a good thing not a bad thing.  Outside of the public sector, everyone else receives a pension (if at all) based on a specific amount of money allocated each year.  This means that the obligation and the amount contributed at the time are exactly equal.  It has the beneficial effect of preventing wide gaps between promised payments and the funds available for them.  It avoids taxing people, today, to pay benefits promised years ago to people who are either no longer working or who are drawing a salary while also collecting the pension.   It is dishonest to tell people that their taxes go to pay for government services when they are actually paying for trips to Vegas or to visit the grandkids for people who stopped providing services years before.

  • Speech85

    Look, I am fine with reducing cops’ pensions.  IMO, police should not be paid more than soldiers serving in Afghanistan–as they are in California.  And the report points out (rightly) that cops and firefighters will be the ones most impacted by this.  Teachers might actually see their pensions go up.  State employees (who have already felt all or most of these reforms) should see little or no impact.  So if the report is accurate then I may well be supportinve of the proposal myself.