US - California governor Edmund Brown yesterday introduced a raft of state pension reforms that could introduce a hybrid scheme for new employees, increases the retirement age for new hires and increases pension contributions for all employees, among other changes.
The governor's 12-point plan is meant to reduce California's significant pension costs which are forecast to reach $1.8bn this fiscal year, according to Bloomberg.
To reign in costs, Brown has proposed introducing a hybrid scheme for new hires which would offer a reduced defined benefit component, an approach adopted by California's Orange County in 2009. (Global Pensions; 13 October 2009)
Brown said the hybrid plan would combine DC, DB and the federal Social Security programme to replace 75% of an employee's pay on retirement.
He also plans to increase the retirement age for all new employees, with most new employees working until the federal retirement age of 67. Currently, most non-safety employees can retire at 55 with some safety employees retiring at 50.
Brown said there needs to be an equal sharing of pension costs between employer and employee. His proposal calls for both to move towards splitting the cost of the annual pension benefit evenly. Currently, some public employees contribute to their pensions - state employees contribute 8% of salary - while others contribute none. The plan is to phase in higher employee contributions allowing employer contributions to decline.
His plan also target the practice of pension spiking, where an employees' salary is drastically increased in the last year of service in order to boost the pension payment. Under the new proposal, pensions will be calculated using an average of the last three years of salary, as opposed to the current final year.
The state's largest pension fund, the California Public Employees' Retirement System, will also see its board change, with Brown calling for two independent board members. He also plans to replace the state personnel board seat with a seat for a representative from the director of the California department of finance.
Brown said: "It's time to fix our pension systems so that they are fair and sustainable over a long time horizon. My plan raises the retirement age and bans abusive practices like ‘spiking' and ‘air time' while mandating that public employees pay an equal share of pension costs."
The Centre for Social Justice is calling for the state pension age to be raised to 70 by 2028 and to 75 by 2035, a much faster rise than currently planned.
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