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State legislature takes on pension reform

January 25, 2012 12:00:00 AM PST
The battle over pension reform for state workers is heating up. The state could save money with a new plan, but some say the "nest eggs" of new employees would be at risk.

The goal of a hybrid retirement plan is to shift more of the costs to workers rather than taxpayers.

Under increasing public and budget pressure to change retirement benefits for state and local government workers, the Legislature is finally holding hearings on a hybrid plan, which combines a 401(k)-type plan with public pensions.

There's not a bill with an actual proposal yet, but experts from around the country told California lawmakers how similar plans have worked in other states.

401(k)-type plans are known as "defined contributions," or DCs. Pensions are known as "defined benefits," or DBs.

"The DC allocation typically provides less of a return than what most people would get in a defined-benefit plan," said Diane Oakley, executive director of the National Institute on Retirement Security.

Defined contribution plans have been unpopular with labor groups because of the volatility of the stock market.

While the largest public employee union is open to a hybrid plan, it hopes whatever proposal comes out of committee doesn't rely too much on 401(k)s because of what many retirees are experiencing today.

"There was a national study that said they have less than 25 cents on the dollar for what they need to retire comfortably," said Terry Brennand, a policy analyst with the Service Employees International Union. "The 401(k) experiment hasn't worked. Look at your own 401(k). Are you ready to retire?"

But critics say public pensions have been too generous, even though most state government retirees receive less than $30,000 a year. They point out a hybrid would relieve the state budget of crushing pension obligations.

One expert testified, though, that California may not achieve great savings by converting because any new plan can only be legally applied to new hires.

"A hybrid does not necessarily produce any more cost savings than any other plan," said Keith Brainard, research director, National Association of State Retirement Administrators.

The hearing is the start of what's expected to be a long fight.

"The unions have too much say in this town. But here's the reality: We can't fund education at the same time we're funding high-speed rail and a huge pension deficit," said Tom Del Beccaro, chairman of the California Republican Party. "Something's got to give."

Governor Jerry Brown has proposed a hybrid retirement plan but he hasn't found a lawmaker yet to sponsor it in bill form.