US - California Governor Arnold Schwarzenegger has reached an agreement with the Service Employees International Union (SEIU).
The tentative contract agreement will result in the rolling back of retirement formulas used to calculate pension payments for new employees to pre-1999 levels, which increases the retirement age to receive full benefits for most.
The current formulas, negotiated under the prior administration and enacted into law by the legislature in 1999, have been partially responsible for driving up the state's unfunded pension liability and creating unsustainable pension costs, Schwarzenegger said.
Current and new employees will also have to contribute 3% more of their pre-tax pay toward retirement, permanently reducing the state's contribution by the same amount.
The talks also resulted in a 10% reduction in employee compensation costs through furloughs and unpaid leave days.
"This agreement continues our progress toward critically needed pension reform and, along with the previously reached union agreements, will help address the state's soaring retirement costs," Schwarzenegger said.
"Unfunded retirement benefits for government employees are a huge problem because, as these costs rise, the state has less and less money for the programs that Californians depend on.
"Not only will this agreement address long-term unsustainable costs, it also brings necessary relief to California's taxpayers in the current budget with additional savings in employee pay. I commend SEIU for being a part of the solution to these problems."
This year, California taxpayers are being required to divert nearly $3.8bn from state programs and services to pay for pensions provided by just one of the state's pension funds, CalPERS. This is five times more than CalPERS projected in 1999. In total, the state is paying $6.5bn this year for all retirement benefits, four times more than the state spent ten years ago.
Earlier this year, the Administration reached contract agreements including pension reforms covering approximately 37,000 employees under six unions. Schwarzenegger claimed that in financial year 2010-11 alone, these agreements would save the state nearly $140m.