Tucked away on page 227 of Gov. Arnold Schwarzenegger’s first complete budget proposal seven years ago was a plan to rein in public employee pensions.
Benefit increases given to state workers at the height of the 1990s stock market boom could not be sustained, the new governor argued at the time. While it would not be right to take back those benefits from workers who were then relying on them for retirement, those employees should be asked to contribute more to their pension fund, and newly hired workers, Schwarzenegger proposed, should be returned to the pension plan that existed until 1999.
Like many things Schwarzenegger proposed in his first year in office, his pension proposal went nowhere. It was dead on arrival in a Legislature controlled by Democrats who were close allies with the state’s powerful public employee unions.
But seven years later, with the state facing perpetual deficits and teetering on the edge of insolvency, Schwarzenegger has finally achieved the goal he laid out in his first weeks on the job. As part of the budget deal lawmakers passed this week, most newly hired state workers will get pension benefits that were in place until the passage of a 1999 bill that boosted them with little debate and even less serious review.
For most state workers hired after Nov. 1 who stay for their entire careers, the change will come down to this: they will have to work until age 60, rather than 55, to be eligible for a pension equal to 2 percent of their final pay for each year they worked for the state. A person who works 30 years and ends with a salary of $60,000 will still get an annual pension of $36,000 a year at age 60, and $43,500 if they work until they are 63.
Pensions will also be reduced for many public safety employees, who got the biggest bump in 1999 and have been, until now, considered politically untouchable. Rather than being eligible for pensions of up to 90 percent of their salaries at age 50, they will have to work 30 years and until at least age 55 to get 75 percent of their pay in retirement.
These changes, however, will not apply to employees of the Highway Patrol or the state’s prison guards, at least for now. And local government employees, who in many cases got far bigger pension bumps than did state workers, were also left out of this reform, although cities and counties are free to reduce those benefits if they choose.
In addition, most current state employees will have to contribute three percent more of their paychecks to the retirement fund, a total of 8 percent of their earnings for many of them. And pensions will be based on an average of employees’ final three years salary rather than only the final year, preventing, in most cases, a practice known as “pension spiking,” when a worker gets a big pay boost in his or her final year and then uses that to increase their pension for life.
Schwarzenegger said Friday that the pension rollbacks and a budget reform that will go on the ballot in 2012 will put the state on a path to “long-term fiscal stability.”
It will take a lot more than these changes to accomplish that goal.
But Schwarzenegger will leave office knowing that he managed, after a seven-year campaign, to divert some of the state’s resources from public employees to the public they are hired to serve, including school children and low-income Californians who depend on the state for health care and social services.