Administration February 25, 2011

Commission Calls for Hybrid Plan for CA Government Workers

February 25, 2011 (PLANSPONSOR.com) - The Little Hoover Commission, an oversight agency on California State Government Organization and Economy, has urged the Governor and the Legislature to establish the legal authority for the state and local governments to freeze pension benefits for current workers.
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In its report, Public Pensions for Retirement Security, the commission recommends a “hybrid” model that combines a lower defined-benefit pension formula with an employer-matched and risk-managed defined-contribution plan. According to a press release, the commission also suggests the state explore options to extend Social Security old-age benefits to all uncovered state and local public employees, following a model adopted for federal employees 25 years ago.  

While the commission acknowledged the significant challenges to modifying pension benefits for current workers, still it said the Governor and Legislature should set uniform standards for the 85 defined-benefit pension plans in California, including: 

  • A cap in the $80,000 – $90,000 range of the maximum salary that could be used to calculate pension benefits; 
  • Eligibility ages for pension benefits that do not encourage early retirement; 
  • A requirement that employees and employers share the normal costs of funding their pension plans; 
  • Clear definitions of final compensation to prevent “spiking”; 
  • A prohibition against contribution “holidays” when employers do not pay into the funds; 
  • A ban on retroactive pension increases; and 
  • Steps to improve accountability and transparency. 

 

The commission’s full report can be obtained at http://www.lhc.ca.gov/studies/204/report204.html.

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