SACRAMENTO, Calif. /California Newswire/ — Governor Arnold Schwarzenegger yesterday (Oct. 20) signed SB 867 and SBX6 22 by Senator Dennis Hollingsworth (R-Murrieta), formally implementing comprehensive pension reform for the people of California. Together, these bills implement a public pension system that is fair to both the employees and also to the taxpayers and will help ensure California’s future fiscal health.
“Pension reform is a major victory for the people of California. Pension debt has become the silent thief of our treasury, robbing vital programs such as education, parks, public safety and environmental protection,” said Governor Schwarzenegger. “With this reform we will put California on the road to fiscal health. I promised the people of California that I would fight for this pension reform and I am proud to sign legislation to finally make it law.”
These two bills implement pension reform by rolling back SB 400 for new employees, ending the practice of pension spiking and increasing transparency in the pension system. These reforms are projected to save CalPERS up to $100 billion over the decades to come. Specifically, the bills:
* Rolls back SB 400: The expansion of pension benefits adopted in 1999 under SB 400 will be rolled back for new employees.
* Ends pension spiking: Employee retirement rates will be based on the highest consecutive three year average salary as opposed to the single highest year.
* Increases transparency: The arcane assumptions made in establishing required pension payments have a major impact on the long-term cost of pensions and whether those costs are passed on to taxpayers for decades to come. Taxpayers deserve to know how these decisions are made. This legislation requires CalPERS, any time it adopts contribution rates, to submit a report to the Governor, Treasurer and legislature that in plain language describes (1) the discount rate it uses to report pension liabilities and how those liabilities would be valued if a risk-free discount rate was used, (2) the investment return it assumes for projecting contributions and how those contributions would change if a lower investment return assumption was used, (3) the period over which it amortizes unfunded liabilities and how contributions would change if unfunded liabilities were amortized over a period equal to the estimated average remaining service periods of employees covered by the contributions, and (4) the market value of its assets and how that value differs from its chosen actuarial value for those assets. It will also require the Treasurer to evaluate and provide its opinion of the report to the legislature.
These legislative changes build on the Administration’s recent agreements with public employee unions. Thus far, the Administration has reached bargaining agreements with the following public employee unions: the California Association of Highway Patrolmen, California Department of Forestry Firefighters, California Association of Psychiatric Technicians, American Federation of State, County and Municipal Employees, Union of American Physicians and Dentists, the International Union of Operating Engineers and the Service Employees International Union.