Both proposals were shot down on Monday by a Senate committee that rejected a pack of bills aimed at reducing the risk taxpayers face if an economic crisis cripples the state’s public pension funds.
Most of the bills came from Republican Sen. John Moorlach of Costa Mesa and Democratic Sen. Steve Glazer of Orinda, who argue that the rising cost of public pensions could drive local governments into bankruptcy when the next recession hits.
“We need to right-size the system. We need to restore public trust, because we’re going off a fiscal cliff,” said Glazer, the former Orinda mayor who sponsored the bill that would have allowed state workers to choose to participate in defined contribution 401(k) plan instead of the defined benefit plan offered by the California Public Employees’ Retirement System.
California’s two largest public pension funds, CalPERS and the California State Teachers’ Retirement System, each have about 71 percent of the assets they’d need to pay all of the benefits they owe to public workers and retirees.
They’ve been trying to close the gap between what they have and what they owe by raising the amount of money they charge to public employers and employees, prompting some local governments and school districts to complain that pension costs are “crowding out” resources for other services.
But Glazer and Moorlach could not convince the Senate Public Employee and Retirement Committee that the looming crisis they see is dangerous enough to tinker with pension commitments made by the state and local agencies to millions of people.
Sen. Connie Leyva, D-Chino, countered that she wanted to find ways to encourage more people to join pension programs instead of 401(k) plans. “I just think we need to do everything we can to get our young people into defined-benefit plans,” she said.
The pension overhaul bills the committee rejected were:
▪ Moorlach's Senate Bill 1032, which would make it easier for local governments to separate from CalPERS without paying the hefty termination fees that CalPERS charges to fund pension obligations for defunct agencies. If an agency quits CalPERS without paying the fees, CalPERS slashes the pensions it provides to the agency’s former workers.
▪ Moorlach’s SB 1031, which would prohibit pension funds from providing cost-of-living adjustments to retirees if the pension fund has less than 80 percent of the assets it would need to pay the benefits it owes. Most retired public employees can receive cost-of-living adjustments of 2 percent each year, but some contracts allow up to 5 percent. Moorlach's proposal would have applied only to state workers hired after Jan. 1, 2019.
▪ Glazer’s SB 1149, which would have allowed new state workers to opt for a 401(k) plan instead of a pension. The concept is attractive to younger workers who do not intend to be career civil servants. The University of California is offering a similar plan, and 37 percent of new workers are choosing 401(k) plans instead of pensions.
The bills are essentially dead for this legislative session, although they could be revived if enough lawmakers want to bring them back from reconsideration.
A long line of union representatives spoke against each bill. Terry Brennand, a lobbyist for SEIU California, called the Glazer bill a “disaster waiting to happen.”
Ted Toppin, a lobbyist for state scientists and engineers, called the bill to waive CalPERS' termination fees an opportunity for employers to “stiff” their workers in retirement.
The unions want more time for the pension funds to benefit from recent changes that have employers kicking in more money for retirement plans and to recalibrate from the 2012 law that eliminated especially generous plans that the Legislature offered to public employees during the dot-com boom.