Will a pension reform effort avoid the fate of other bills CalPERS sidelined?
Blazing its way through the Legislature is a proposal that could give California firefighters and police officers better pensions and earlier retirements.
If passed, the measure would make significant adjustments to a previous pension reform effort spearheaded by Gov. Jerry Brown after the 2008 financial crisis to prevent further growth of unsustainable pension debt.
On one side, the bill has hefty support from public safety unions, which was made clear by the dozens of firefighters who lined up in the Capitol Annex Swing Space during a Wednesday hearing to ask for lawmakers’ support. The proposal’s opponents include dozens of cities across California that are sounding the alarm over the anticipated fiscal burdens this measure will put on municipalities.
The California Public Employees’ Retirement System, which provides pensions to these public safety workers, is at the center of the debate.
CalPERS’ board does not plan to take a public stance on the pension reform bill, but the pension fund’s staff have issued some stark fiscal warnings about the proposal. Some other bills introduced this session have been amended or killed after the influential pension fund warned they would lead to significant cost increases for the retirement system.
Better pensions, lower retirement
Assembly Bill 1383 would enable unions to negotiate more generous retirement benefits for newly hired police officers and firefighters, and lower the retirement age from 57 to 55. Supporters said that dangerous working conditions and the need to recruit more public safety professionals justifies the increased costs.
Opposing the bill are representatives of local governments who said this week that the proposal would financially strain municipal budgets. CalPERS estimated that the bill would increase the costs to pay for projected retirement benefits by $4.8 billion.
A CalPERS spokesperson said the agency does not take positions on bills, like AB 1383, that make changes to members’ benefits given those costs are paid by the employers and employees.
A legislative analysis warned that the bill will likely result in CalPERS’ debt growing, “and that’s assuming that CalPERS’ assumptions pan out, that investment performance continues to outpace the CalPERS’ discount rate, and that no significant deleterious economic event occurs.”
Despite the projected costs, the bill’s author is confident her colleagues will agree there is a need to improve the retirement benefits for public safety professionals and will send this measure to the governor’s desk.
“As you can see, it’s flown through every committee,” Assemblymember Tina McKinnor, D-Inglewood, said after Wednesday’s hearing.
Unlike other groups in California, CalPERS doesn’t employ lobbyists to sway lawmakers, but several recent examples show that the pension fund has successfully prevented legislation that its staff opposed from moving forward.
Effectively killed by CalPERS
Last week, the CalPERS board was preparing to vote on a staff recommendation to oppose a bill that would have required the retirement system, which provides state employees and retirees with health plans, to provide one health plan that covers weight-loss drugs.
The legislation, authored by Sen. Laura Richardson, D-San Pedro, was intended to make these medications more affordable to Californians by also directing the California Health and Human Services Agency to negotiate lower drug prices for GLP-1 medications.
Richardson attested to how her own health has benefited significantly from taking GLP-1 drugs and said more Californians should be able to afford these medications that can address a range of health issues.
The bill’s impact on the massive pension system alarmed CalPERS’ staff, who estimated that premiums would increase by over $28 a month per member in the first year of the bill. In total, the cost of health insurance for CalPERS members would increase $437 million in one year, a staff report estimated, as a result of the coverage requirement.
Because of those “significant and ongoing” cost increases that members and employers would have to pay, the staff encouraged the pension board to oppose the measure.
Before the board could vote on the staff’s recommendation, Richardson’s bill was amended to remove language impacting CalPERS.
That portion of the legislation was effectively killed by CalPERS, Richardson said.
“I feel that that’s wrong, because there are 1.5 million employees — I’m one of them — who needed help, and they’re not willing to provide it,” Richardson said.
A CalPERS spokesperson declined to comment on Richardson’s statement.
‘I’m happy it’s not moving forward’
Earlier in the session, a similar series of events transpired after a lawmaker, with the backing of unions, proposed a bill that would have required CalPERS to disclose information about its investments in private equity as a means of shining a light on the companies owned by these often opaque firms.
Again, the staff prepared a recommendation to the board to oppose the legislation because it would put CalPERS at a competitive disadvantage with other pension funds that don’t have the same disclosure requirements. The report estimated the bill would reduce the funded status of CalPERS, which was reportedly 79% at the end of the last fiscal year, by 5% and increase employer contributions by over $6 billion annually.
Before the board needed to take a public stance on the bill, it had already stalled in the Senate Appropriations Committee.
Sen. Dave Cortese, D-San Jose, the bill’s author, said at the time that he was disappointed that CalPERS was opposed to the transparency measure.
“I hope we were heard about our concerns about the financial impacts of the bill as it was currently written,” CalPERS CEO Marcie Frost said after the private equity bill died in appropriations. “I’m happy it’s not moving forward.”
The fate of AB 1383, which is now before the Senate Appropriations Committee, will be closely watched by public safety unions, municipal governments and CalPERS.
