California Pension Overhaul Bills Killed

A California state Senate committee has rejected a trio of pension overhaul bills that were intended to stem rising pension costs for the state.

The bills that were rejected include a bill that would have barred pension funds that are less than 80% funded from providing cost-of-living adjustments; one that would have allowed local governments to leave CalPERS without paying large termination fees; and a third that would have allowed new state workers to opt for a 401(k) plan instead of a defined benefit pension.

Senate Bill 1031

The bill would have prohibited a public retirement system from making cost-of-living adjustments to new members joining in 2019 if the unfunded actuarial liability of that system is greater than 20%.

The aim of the bill was to help curb accruing further unfunded pension liabilities, however, the Senate Standing Committee on Public Employment and Retirement said the bill would impose a prohibition on one aspect of deferred compensation for public employees. The committee said existing labor relations laws require compensation, including deferred compensation, to be collectively bargained between public employers and their employees.

“This bill is premature in that no bargaining and agreement over the terms of a ban or limitation on COLAs for new plan members has occurred,” said the committee in its analysis of the bill.

It also said that it was unclear how the bill could have substantially slowed the growth of the existing unfunded liability of CalPERS since that liability arises from benefits promised to current retirees and existing members.

“Any savings from the COLA freeze proposed by SB 1031 would be many years away and dependent on inflationary conditions far in the future,” said the committee.

Senate Bill 1032

This bill would have eliminated the existing Terminating Agency Pool (TAP) process for a contracting agency that seeks to end its CalPERS contract. It would have allowed an agency to terminate its contract with the board without having to fully fund the board’s pension liability.

Under existing law, the CalPERS board is required to hold the accumulated contributions from a terminated contract in a terminated agency pool for the benefit of the members. The terminating contracting agency is required to contribute to the terminated agency pool the difference between the accumulated contributions and the board’s pension liability for the contracting agency’s members, as provided.

“Eliminating the TAP is yet another way to undermine public-sector pension plans,” said the California Teamsters Public Affairs Council in its opposition to the bill. “The vitality of the entire systems rests upon collective participation by agencies across the state. Without the TAP, the state loses power over agencies that decide to sever ties with CalPERS or slash pensions.”

Senate Bill 1149

The bill would have created an optional defined contribution plan for new state employees who are eligible to become members of CalPERS, and who choose not to make contributions into the defined benefit program.  It would also have required state employees to participate in an alternate system to contribute the same percent of compensation as similarly situated employees who contribute to the defined pension program. 

The bill was opposed to by a slew of unions, including the Service Employees International Union, which argued that “virtually every study that compares DC and DB plans concludes that defined contribution plans are as much as 40% less efficient and more costly that a defined benefit plan in providing the same benefit.”

And the California Labor Federation said that the proposed bill “would shift all the risk on to workers, meaning an employee could lose most or even all their retirement saving due to a market crash or bad investments decisions.”

Although the killed bills won’t see the light of day during the current legislative session, they could be brought back for consideration in future sessions.