The State Worker: New pension plans differ greatly from ‘classic’ models
04/09/2014 8:06 PM
10/08/2014 11:49 AM
California became a dual-class public employee state last year when a sweeping law lowered pension benefits for state and local government workers hired in 2013 and later.
What that means for the state, for taxpayers, for employers, has been known for a while. But now a new CalPERS report uses a few examples to illustrate the law’s impact on individuals. It concludes that new members must set aside hundreds of dollars per month or extend their careers for years to achieve the same retirement income as counterparts under older, more generous formulas.
Let’s take a miscellaneous employee, a common classification that covers everyone from DMV office staff to local school custodians. Say the employee retires at age 55 after 20 years of service with a final salary of $92,200.
That worker, if hired before Brown’s law changed retirement benefits formulas, CalPERS estimates, would receive a $3,020-per-month pension (plus Social Security). CalPERS refers to employees under that old, 2 percent-of-pay at 55 plan as “classic members.”
A miscellaneous employee under the new plan gets 1.3 percent at 55. Translation: A monthly pension that’s $1,113 less than the classic’s retirement.
Say both retire at 62. The difference in classic vs. new benefits narrows to $748, CalPERS researchers figure.
For new cops, Highway Patrol officers and other public safety workers, same deal.
Assuming that same $92,200 final salary and 20-year career, a police officer retiring at 50 would receive a $4,610 pension check each month under the old formula, CalPERS estimates, and $2,987 under the new terms. (Cops, firefighters and other public safety workers don’t participate in Social Security.)
The old formula doesn’t encourage public safety employees to stick around because the percentage of pay calculated for pension purposes doesn’t increase after age 50. Their newer counterparts, however, get 2 percent of salary at 50, rising to 2.7 percent at 57. As a result, the difference between the hypothetical classic and new public safety pensions at age 57 narrows to a few hundred dollars per month.
To make up the differences, those hypothetical new members would need to invest $373 to $1,480 per month and work up to five more years to enjoy the same retirement income as their classic counterparts.
That is one reason unions still think the new pension law is a needlessly harsh end-run around collective bargaining. Others, like pension-change advocate San Jose Mayor Chuck Reed, blast the law for leaving long-term employees’ pension formulas untouched. They say servicing those obligations is crushing government with soaring retirement bills. Some people, of course, think guaranteed government pensions should be abolished.
The new CalPERS report won’t settle that debate, but it does translate one piece of it into manageable, meaningful terms.
About This BlogJon Ortiz launched The State Worker blog in 2008 to cover state government from the perspective of California government employees. Every day he filters the news through a single question: "What does this mean for state workers?" Join Ortiz for updates and debate on state pay, benefits, pensions, contracts and jobs. Contact him at email@example.com or 916-321-1043. Twitter: @TheStateWorker.
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