California Foundation for Fiscal Responsibility


SUMMARY OF THE PUBLIC EMPLOYEE BENEFITS REFORM INITIATIVE


The Public Employee Benefits Reform Initiative places responsible limits on the defined benefit pension and retiree health care plans that can be offered to new state and local government employees hired after July 1, 2009.

New Full Retirement Ages

The full retirement ages for new government employees are increased to 55 years for police and firefighters, 60 years for other public safety employees and the appropriate Social Security retirement age (65-67) for all other job classifications. New government employees may retire at earlier ages with actuarially reduced pension and health benefits.

New Limits on Pension Benefits

The maximum defined benefit pension formulas have to be recalculated to provide, when combined with any Social Security payments, a 60-67% replacement income for new government employees who spend their entire career working for government or education agencies. The formulas used to calculate pension payments are as follows:
 
Police Officers and Firefighters
Other Safety
All other Non-Social Security
All other Social Security
2.2% x highest ave salary x years of service @55
1.8% x highest ave salary x years of service @60
1.5% highest ave salary x years of service @SS Age
1.0% highest ave salary x years of service @SS Age


Highest Average Salary Calculation

Pension funds would use an average of the highest consecutive five years of base wages, excluding all other additions such as overtime pay, bonus pay, severance pay or payouts for unused vacation or sick days.

Minimum Vesting Requirements

New employees would need to work 5 or more consecutive years for a public agency or agencies to qualify for lifetime pension benefits. Lifetime retiree health benefits would only be available to new employees who work ten years for one or more public agencies and have at least five consecutive years immediately prior to retirement.

Cost of Living Adjustments

Cost of living adjustments of up to 3% a year may be provided to retirees after 5 years should the inflation-adjusted purchasing power of their original benefit fall below 80%. If a pension fund's funding status is above 110%, the public agency may grant an increase of up to 3% each year to all retirees so long as the funding status does not drop below 110%.

Retroactive Benefit Increases Prohibited

No retroactive increases in pension or retiree health benefits may be granted to any employee (including current employees).

Raids on Pension and Retiree Health Funds Prohibited

Public agencies are required to make full payments to their pension and retiree health care funds each year, regardless of their funding status. Money may not be taken out of pension or retiree health care funds for any purpose other than providing the benefits for which they were established. These protections apply to all funds, including those set aside for current public employees.

Expand Local Control

The initiative establishes prudent limits on defined benefit pension and retiree health care plans. State and local government agencies may provide lower benefits as they see fit and may offer other forms of deferred compensation that are not defined benefit plans. In addition, the terms of retirement benefits offered to new employees will remain the exclusive authority of public agencies and cannot be included in collective bargaining agreements.

Voter Approved Increases

With the approval of a two thirds vote of their constituents during a statewide general election, any local agency may exceed the pension benefit formulas contained in the initiative. By a three fourths vote of both houses, the state legislature may exceed the benefit levels for state employees and the University of California without voter approval.

Death and Disability Benefits Not Affected

The initiative clearly states that the death and disability benefits offered to current and new employees are not affected by this initiative.


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