LAO: Ballot proposals to cut California government pension costs may wind up increasing them

Two ballot proposals aimed at cutting government pension costs could wind up increasing them, are fraught with legal and fiscal uncertainty and would put pressure on governments to increase public employee pay, according to new analyses of the measures.

The nonpartisan Legislative Analyst's Office on Tuesday released its takes on two public pension reform plans filed by Dan Pellissier, president of California Pension Reform. The group hopes to put one of the proposals to a statewide vote next November.

Steve Maviglio, spokesman for labor coalition Californians for Retirement Security, issued a statement calling the pension plans "sloppily drafted and extreme" initiatives that "will be an economic disaster for our state."

Pellissier, meanwhile, released a statement that focused on pension abuse and governance provisions common to both plans and the LAO's conclusion the proposals will eventually cut pension costs: "Californians are ready to vote for this type of pension reform to help get our fiscal affairs back on track."

The law requires that the nonpartisan legislative analyst review the fiscal impact of ballot proposals before they go before voters.

The analyses of the pension plans lacked many hard numbers because, the analyst said, the measures could affect hundreds of state and local pension plans and the outcomes are affected by economic and political variables virtually impossible to predict.

One measure would put future employees in hundreds of state and local pension funds into 401(k)-style plans instead of the current defined-benefit retirements guaranteed by employers. The other proposal puts future workers into "hybrid" plans blending the two types of accounts.

Pellissier's organization is trying to raise money to launch a signature-collecting campaign early next year after it chooses which of the two plans to promote.

Legal experts generally agree that state and federal laws governing contracts prevent governments from altering pension guarantees to current workers. If either measure is approved by voters, it's likely to land in court, the analyst said.

Since the lower-cost pension plans proposed would affect only new hires, the savings wouldn't be fully realized for many years, the analyst said. Current workers would continue to accrue and then retire on guaranteed pensions, while new workers could come in under cheaper plans with smaller contributions from both employers and employees.

Pension funds would have to rethink their investments since their cash flow would shrink. Some retirement programs would eventually close.

The hybrid plan could hike state and local governments' contributions during the long transition "to over $1 billion more per year to cover pension costs of current and past employees," the LAO said. The defined-benefit plan could increase employer contributions "several billion dollars more per year."

The analyst figures that government employers competing for workers also would offer higher salaries since their retirement packages wouldn't be as enticing. Employers could come out ahead eventually, the LAO said.

Editor's note: Comments on this story were closed Dec. 28 because of off-topic comments.

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