Last month we looked at Governor Brown’s proposals to “reform” California State and local government retirement systems. At least two privately sponsored initiatives are also in the wings, already approved for circulation for signatures. More extreme than Brown’s proposals, they’ve been entitled “Government Employee Pension Reform Act of 2012, Version #1 and #2,” and were submitted, we’re told, by a Daniel Pellissier, a Schwarzenegger aid and President of “California Pension Reform,” an anti-tax group in Sacramento.

We understand Pellissier is pondering which version to circulate for signatures, and the costs resulting therefrom. They’ll need sponsors with deep pockets.

At this writing, the Governor’s 12 points are still in bullet form, while Pellissier’s initiatives are already in legalese. The Governor’s proposals would become approved state legislation, and therefore amendable, while Pellissier’s initiatives, if approved by voters, would be permanently ensconced in the California Constitution unless amended by the voters. Inflexible, but, isn’t that the idea?

The following description broadly paraphrases and abbreviates the initiatives, due to their length and complexity and our limited space.

Both versions of the initiative require state and local governments to provide reasonable and fiscally responsible pension or other retirement benefits for their government employees subject to the many limitations listed. They also allege a situation wherein California’s pension plans are currently “. . .dangerously under-funded, the result of overly generous benefit promises, wishful thinking and an unwillingness to plan prudently.” There’s no discussion of pension adequacy or the costs of publicly supporting the impoverished elderly. Sound familiar?

For new employees hired after July 1, 2013, both versions:

Preclude retirement plans or agencies from accumulating any debt resulting from defined benefits.

Require employees to contribute as much to retirement plan defined benefit costs as public agencies contribute, and prohibit agencies from contributing any of the employees’ required contributions.

Limit government agencies to contributing 9% of safety members’ base wage and 6% of non-safety member’s base wage.

Require public employees without Social Security to be provided a defined benefit equal to the Social Security benefits they would otherwise have received, funded equally by the employer and employees, except safety member benefits would be available at age 58 with 30 years service.

Only allow death and disability benefits provided from outside the retirement system.

Allow government agencies to modify terms of their retirement plans at any time.

Require pensions for employees hired before July 1, 2013, and retiring after June 30, 2016, to be calculated on their highest average three-year salary.

Require public employers to immediately raise the funded level above 80% anytime the fund falls below that, or declare they can’t do so “without impairing essential government services.” Assuming the latter, agency contributions remain limited to 9% for safety members and 6% for non-safety members, and employees must pay any additional amount needed, except the employees’ contributions couldn’t increase more than 3% annually.

This arrangement would remain in effect until the plan exceeded the 80% funded level.

Affected employees dissatisfied with those circumstances could, we are told, withdraw from that retirement system, and join any other retirement plan the agency would be providing for employees hired after July 1, 2013.

And, here’s the difference between the two versions. Version #2 uniquely allows the California Legislature to authorize, by two-thirds vote, a hybrid retirement system for California government employees hired after July 1, 2013, to include the familiar defined benefit system, a defined contribution system and projected Social Security benefits, together supposing to provide after a full career, 75% of the public retiree’s average highest three year pay. But, there’s no guarantee! A full career is defined as 30 years service and 58 years of age for safety members and 35 years service and 67 years for non-safety.

The defined benefit portion of the hybrid pension could not exceed 25% of “pensionable pay,” or $100,000 annually, adjusted for inflation, unless the employees were ineligible for Social Security, whereupon it could provide 50%.

Government agencies and employees must equally share all costs of hybrid, defined benefits, including payments for unfunded liabilities.

Finally, both versions include other prohibitions. The initiatives don’t provide benefits to members of the California Legislature. Retroactive increases in retirement contributions, benefits or the formula are prohibited, and government pensions would be prohibited for retirees with felony convictions arising from their employment.

Employees could not buy service time not qualified as government or military service. Annual, normal employer and employee contributions may not be “skipped” unless the system exceeds 120% funded level. Overtime and non-salary allowances are excluded from the pension calculation, and retiree raises (COLA’s) can’t exceed Social Security increases.

The California Legislative Analyst has reviewed these initiatives, and comments that if approved, financial impacts are difficult to determine over the next three decades, because for future employees, agency savings will likely be offset by higher salaries and non-retirement benefits to stay competitive in the labor market. Other, much higher government cost increases have been estimated, due to the elimination of new employees coming into existing retirement plans and the loss of their previously projected contributions.

It’ll be an interesting year for public employees and retirees. Watch what you sign in front of Wal-Mart!

During December, San Diego County retirement plan assets increased by $49.6 million, reducing fiscal year-to-date earnings to a loss of $67.8, and bringing the total fund to $8.1 billion NOTE: Received late information, after the submittal deadline, that these initiatives won’t proceed to the ballot this year. But, there’s little doubt we’ll see them again. Stay tuned!

Good news! SDCERA (San Diego County Employees Retirement Association) announces Standard and Poor's has affirmed the highest, AAA issuer credit rating possible, for the Association. Listed factors leading to that affirmation include a diversified $8.1 billion portfolio, strong fund management, an 81.5% actuarial funded ratio and strong credit quality of the pension system's sponsor, San Diego County.  Read More