California Gov. Jerry Brown has signed a hotly contested pension reform bill whose impact on public employees may signal a new era in DB and health care coverage nationwide.
Reuters notes that Brown's new legislation will raise the minimum retirement ages for many public employees as well as reducing pension benefits for all new workers.
"Under the new rules, employers and employees alike are going to contribute their fair share of the costs, resulting in a more sustainable system," Brown said, in a statement. The law, he adds, is the "biggest rollback to public pensions in the history of California pensions."
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California's new rules come admit tremendous economic and political pressure to curtail the escalating costs of DB plans and post-retirement benefits for public employees, both in that state and across the U.S.
But California's pressures have been stronger, with several major cities claiming or teetering on the verge of bankrupcy as they find it impossible to meet their pension obligations, in part due to long-term national economic issues.
The state's two biggest pension funds, the California Public Employees' Retirement System and the California State Teachers' Retirement System, are at least $165 million underfunded.
And normally left-leaning, worker-friendly cities including San Jose and San Diego have also joined the fray, with voters supporting measures to limit pension benefits for existing workers and retirees and drastically reduce services to new hires – votes which are being contested in court by public safety employee unions.
Under Brown's new legistlation, new hires will evenly split payments to their pension accounts with their employers, and other government employers will have more leverage to ask the same of current employees, upping their required contributions. Park rangers, game wardens and firefighters will now have to pay more of their own benefits.
The legislation also launches new formulas for calculating future pension benefits for new employees.
As a spin-off to the pension legislation, Moody's Investors Service said the action will go far to increasing California's overall credit rating, currently listed as A1.
The Associated Press notes that the bill did not include a hybrid-styled system Brown had championed which would add a 401(k)-style system so public employees would bear some of the investment risk, as private-sector workers do.
As well, nothing was done to contain the health care costs promised to retiring workers, and there are still no indendent members with financial experties on the board of the state's main pension fund.
"Yes, it's not everything. It's not perfection," Brown told reporters in Los Angeles. "But in politics we don't deal with perfection. These are hard fought. These aren't that easy."
California's public employees' system estimates the changes will save between $42 billion and $50 billion over 30 years, while the teachers' system estimated its savings at $22.7 billion over 30 years.
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