State pension systems see potential obstacles in Brown’s reform plan

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Gov. Jerry Brown’s proposal to overhaul public pensions in California may face legal hurdles and create some new costs, according to officials with the state’s two largest public retirement systems.

More detail about the governor’s 12-point plan is needed to answer a large number of questions, according to analyses by officials with the California Public Employees’ Retirement System, known as CalPERS, and California State Teachers’ Retirement System, known as CalSTRS.

The two reports, which said the plan could result in savings, were submitted to a legislative committee that is scheduled to hold a hearing on the governor’s plan Thursday afternoon at the Capitol.

CalPERS’ report said Brown’s proposal to require employees to contribute more toward their pensions ‘may impair vested rights,’ and may produce little savings from state employees, many of whom already contribute the amounts proposed by Brown.

The governor’s proposal to create a hybrid pension structure, combining a 401(k)-style savings plan with the existing guaranteed-benefit system, ‘will likely require significant legislative action,’ CalPERS’ report said, and ‘may reduce public employers recruiting success to the extend skilled workers value traditional pension benefits.’

CalPERS also warned that if the proposal results in closing the existing defined benefit plan to new employees it ‘would threaten its actuarial soundness.’ Brown’s proposal to increase the retirement age for public workers could result in more of them filing for disability retirement, which would create new costs for the systems, they said.

‘Importantly, the proposal does not include a plan of action to address the long-term funding shortfall in the Defined Benefit Program,’ the CalSTRS report states.

-- Patrick McGreevy in Sacramento