Reforming Public Pensions in California | DCR Workforce Blog

Reforming Public Pensions in California

When I see septuagenarians functioning energetically and discharging their tasks with vigor, the practice of making retirement age-driven seems so very unfair! Professional, entrepreneurs, business owners and politicians generally tend to ignore the very concept of retirement. Age should not push anyone to the sidelines, especially when their individual predilection favors a continuation of their fruitful contributions to the GDP. In other words, the world should treat retirement as a voluntary affair, where the likes of Michael Dell could choose to retire before 40 if he wishes to (while others can plod on till kingdom come)!

Recession has put paid to the retirement plans of many, with dwindling value of assets, like homes. Life expectancy has trended upward from 70 to 78 and pension obligations of states across the US are outstripping their revenues and growing to unmanageable proportions which cannot be ignored. The strident call for the necessary political will to face the pension obligations and the resulting financial risk has been answered.

The hybrid pension plan announced by Governor Brown of the California state takes these facts into account and addresses them squarely.  Brown’s plan rises the retirement age of new and local government employees to 67 from the previous 60 with an option to quit at 55 (drawing full benefits)! For obvious reasons, blue collar workers have the energy and enthusiasm to keep on working while it is harder to continue at jobs that involve physical exertion. The plan also factors that consideration in, through studies and investigations but already exempts categories like police officers and firefighters to retire earlier with full benefits.

The proposal includes a pension plan which has elements of defined benefits and defined contribution plans with a view to making them fair as well as sustainable over a long time horizon, as envisaged by the planners. Employees will need to contribute to half the cost of their plans, and shall not be allowed to retire, collect a pension and then go back to work for the state. This plan is expected to save the state $900 million with a scope for similar savings by the municipalities, if adopted. The plan has been made applicable to every new employee who joins state service in California.

The plan is seen as full of common sense and aimed at solving some of the critical issues, and but still needs to be followed up with more changes that address other issues. While the plan addresses some of the issues with costly public retirement benefits, veering neither left nor right, the massive liability of retiree health benefits has not been addressed comprehensively. Once approved, this reformative approach could act as a platform for sweeping reform and also as a catalyst to encourage more states to slowly but surely realize the immediate need to tackle the escalating costs of pension are draining away public funds.

There is the need to put a stop to the practice of workers spiking their pensions, by inflating their final average compensation by including overtime, longevity pay and unused sick leave, to get larger pensions. The other practice of buying airtime, or extra years of service credit just to fatten one’s pension payouts is also a huge drain on public retirement costs and needs to be curbed. Money saved is ultimately money earned and we shall await the positive effects of these savings on new employees, essential services or even pay rises in fund-starved states.

The content on this blog is for informational purposes only and cannot be construed as specific legal advice or as a substitute for competent legal advice. They reflect the opinions of DCR Workforce and may not reflect the opinions of any individual attorney. Do contact an attorney for advice specific to your issue or problem.
Lalita is a people/project manager with extensive experience in operations, HCM and training and development across industries like banking, education, business consulting, BPO and information technology. She believes in a dynamic approach to life and learning as change is the only constant.