Calif. Leaders Agree To Overhaul Pension System

California Governor Jerry Brown has reached a deal with legislators to overhaul the state's pension system. The changes include capping annual pension payments, requiring new employees to pay 50 percent of their pension costs and raising the retirement age. The package will save the state about $30 billion.

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DAVID GREENE, HOST:

California's governor, Jerry Brown, has announced a set of long-awaited reforms to his state's underfunded public pension system. The Democratic governor says the package will save the state about $30 billion in the future. More details of the cost savings are expected later today.

Brown is hoping the reforms will pave the way for another of his policy goals, as NPR's Richard Gonzales reports.

RICHARD GONZALES, BYLINE: Here's Jerry Brown's quandary: He has a measure on California's November ballot asking voters to temporarily raise taxes to help close a massive budget deficit. To make that sale, he needs to convince voters that he's fiscally responsible. And one way to do that is by chipping away at his state's unfunded pension liability.

The deal hammered out by Democratic lawmakers didn't go as far as Brown had wanted, but he hailed it anyway as a historic achievement.

GOVERNOR JERRY BROWN: These pension reforms offer a radical change in the way pensions have been paid and calculated over the last several decades. It will take public retiree benefits back to below where they were when I was governor the last time.

GONZALES: And that was 1983. The reforms include capping annual pension payments, requiring new employees to pay 50 percent of their pension costs, and raising the retirement age. It also ends the practices known as spiking and airtime, whereby employees artificially inflate their final year's salary or buy credits to pad their pensions.

The package doesn't include a 401(k)-style retirement plan for new employees or reductions in retiree health care costs. Still, union activists wasted no time criticizing the proposed pension reforms.

DAVID LOW: Its going to be the biggest pension reduction in the history of California.

GONZALES: David Low leads a coalition of about one and a half million public employees.

LOW: He's repealing pension benefits that were signed into law by Governors Reagan and Governors Deukmejian. So its really a significant rollback and it was done without collective bargaining. It's being done unilaterally in legislation with basically no give and take with the unions that represent the employees.

GONZALES: The end result, says Low, is that new public employees will receive lower retirement benefits than current workers if this package is approved.

Some business leaders welcomed Governor Brown's announcement. Carl Guardino of the Silicon Valley leadership group said in a statement that the reforms aren't complete but they include steps in the right direction.

Other pension reform advocates say the governor's plan doesn't go far enough and won't address the immediate funding crisis. Lawmakers have until the end of the legislative session, or mid-night Friday to approve the package.

Richard Gonzales, NPR News, San Francisco.

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