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Hybrid Pension Plan on the Drawing Board in California

The proposal would create a pension plan with elements of defined benefit and defined contribution plans and would also raise the retirement age for new state and local government employees to 67.

October 31, 2011
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New California state and local government employees would be covered under a hybrid pension program under a proposal announced Thursday by Gov. Jerry Brown.

The proposal would create a pension plan with elements of defined benefit and defined contribution plans and would also raise the retirement age for new state and local government employees to 67. The normal retirement age for state and local government employees is 60, though some can retire as early as 55 with full benefits.

Brown said in a speech at the statehouse in Sacramento that the plan would save the state about $900 million a year and that similar savings could be achieved by municipalities.

"It's time to fix our pension systems so that they are fair and sustainable over a long time horizon," Brown said.

Brown's plan does not address funding shortages at the $146.6 billion California State Teachers' Retirement System in West Sacramento, which is scheduled to run out of money by 2045 unless contributions are increased to the system. Any contribution increases would have to be approved by the Legislature. The $225.7 billion California Public Employees' Retirement System in Sacramento, has the power to set its own contribution rates.

Under Brown's plan, newly hired public safety workers would be exempt from the new retirement age of 67 and the hybrid pension program. The governor said a study will be performed to determine what the proper retirement age is for public safety employees.

Portions of Brown's plan, such as provisions applying to workers in municipalities across the state, would need voter approval in addition to passage by the Legislature.

Another part that voters would have to endorse would be a plan by the governor to add two independent, public members with financial expertise to the CalPERS board.

Brown's plan would also replace the State Personnel Board representative on the CalPERS board with the director of the California Department of Finance, which is currently Ana J. Matosantos.

Brown said while his plan starts with changes to the CalPERS board, government entities that control other public retirement boards should make similar changes to those boards to achieve greater independence and greater sophistication.

Randy Diamond writes for Pensions & Investments, a sister publication of Workforce Management. To comment, email editors@workforce.com.

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