California Democratic Gov. Proposes Reasonable Pension Plans for State Employees

The New Reality of Public Employment

Public Employee pensions, particularly in California represent a triumph of politics over economics.  In order to garner support of public employees, public employee unions and public employee union political efforts politicians of both parties supported generous retirement benefits for public workers.  Their rationale was simple, the politicians got the immediate benefits from election or re-election to office, and the costs were pushed down the road to the future.

For California and other states, the future is now.  As a result California Democratic Gov. Jerry Brown has proposed a large reform (cutback) in benefits.

Mr. Brown called for raising the retirement age of new employees who do not work in public safety to 67 from 55. He said employees should pay up to 50 percent of their annual pension costs. To reduce the financial exposure of the state, he said future pensions should be a hybrid of the traditional pension model and a 401(k).

To deal with what have been widely seen as abuses of the retirement system, Mr. Brown said the pensions of all new employees should be based solely on their regular salaries, not taking into account any overtime or bonuses. For existing employees, he said the retirement benefits should be based on an average of the last three years’ salary.

He also said that state employees should be barred from double-dipping: retiring, taking pensions and then taking on another state job.

Now this proposal looks more like the opening offer in a game of bargaining than a final deal.  The retirement age increase will probably not be that high.  But the 50% contribution towards retirement will put California workers in line with private employees, where employers typically match 401(k) contributions dollar for dollar.  As for not allowing overtime or bonuses to be taken into account on a defined benefit pension plan, that is absolutely correct.

The point is that unfortunately for public employees, past governments have made promises current taxpayers are unwilling to keep. 

The fact that Mr. Brown, a Democrat with long ties to labor, is proposing such rollbacks, even if not as far-reaching as those proposed by Republicans, is the latest reflection of how budget shortfalls are changing the playing field for public employees.

Nobody should expect Republicans to support a Democratic Governor’s willingness to take action against public employee pension costs.  There will be no positive editorials full of praise from the Wall Street Journal.  After all, Mr. Brown is doing this reluctantly, not eagerly, and it appears he is refraining from bashing and castigating public employees.  And he has not entered into action to destroy public employee unions.  In Republican eyes all of that means he is not doing this right.