In 2009, Orange County supervisors and labor groups developed a hybrid plan option for employees but were stymied by IRS hurdles. In 2011, Governor Brown proposed a hybrid plan for newly hired state employees not in a“ safety” classification. His plan, however, was left out of the final PEPRA reforms. Currently, California Senate Bill 32 proposes a hybrid system amongst other pension reform measures.
Senator John Moorlach, a Republican from Orange County and author of SB 32, has been a vocal critic of defined benefit pension plans. During a phone interview, he told me about discussions he had with CalPERS CEO Marcie Frost, telling her,“ You’ re in the pension business, not the defined benefit business”. Senator Moorlach is withholding SB 32 until the California Supreme Court decides the fate of the“ California Rule”( earned benefits can’ t be reduced) in 2018. He has also introduced Senate Constitutional Amendment 8, which would allow future benefit formulas of existing employees to be lowered. Despite introducing a litany of reforms in SB 32, also known as PEPRA II, the Senator seems to realize a more collaborative approach may be the best way forward on complex issues like a hybrid system.
Stabilizing finances is the primary motivator for city leaders and chiefs when the potential for significant cuts loom. Reform could also benefit chiefs by increasing employee satisfaction and making it easier to recruit. Those in a defined contribution plan may also be less likely to retire for financial reasons if their contributions continue compounding past age 50, 55 or 57.
Labor, which must recognize the changing needs and desires of younger workers, would need assurances existing employees could opt out of any changes. Future employees should have the option to choose a defined benefit plan, a defined contribution plan or a hybrid of the two. Deciding to opt in or not and specifics on contributions should still be negotiated at the bargaining table.
For the taxpayer, any move away from defined benefits would be a win. The shift of longevity risk and investment risk from employer to employee is the primary benefit. The stabilization and long-term savings would help compensate taxpayers for the potential of increased contributions to employee plans in the early years of any defined contribution or hybrid programs.
With competing interests at play, any path forward would require representation from the following groups:
• CalPERS
• League of California Cities
• California Association of Public Retirement Systems
• PORAC
• CPOA
• Labor representing a 1937 Act county
• Cal Chief’ s
• California Taxpayers Association
• Chair of the Senate’ s Public Employment and Retirement Committee
• Governor Brown’ s Office
• The offices of Senators Harris and Feinstein
There would be many challenges to any such reform. By design, CalPERS is a big ship with a small rudder and change does not come quickly. Interpreting the 1276 pages of California Public Employees’ Retirement Law will assuredly lead to disagreements. Narrowing the scope of initial talks to CalPERS safety employees would help keep the discussions focused. Follow-up deliberations regarding 1937 Act systems and non-safety bargaining groups could follow if initial discussions bear fruit. Critically, the issue of IRS rules, specifically IRS revenue ruling 2006-43, pertaining to opt-outs of current pension systems in favor of a less expensive hybrid plan, must be addressed. Forcing changes on existing employees or adding too many untenable goals would be understandable poison pills in any reform discussions.
Rising pension contribution rates and the Marin Association of Public Employees v. Marin County Employees’ Retirement Association, 2 Cal. App. 5th 674 appeal will keep this issue in the headlines for years to come. The status quo of one-sided legislation, lawsuits, ballot initiatives and counter-initiatives is costly and divisive. Now is the time to lay a more robust foundation for those who will lead the police departments of tomorrow. Perhaps a great California pension convention, focusing on compromise and interest-based bargaining, is the first step toward achieving this goal. Following the example of the Founding Fathers, we should encourage all parties to put old animosities aside and work toward the common good. California’ s Police Chiefs are well positioned to advocate for this better path forward. ■
Steve Gorski is a Captain with the Walnut Creek Police Department. He is a member of the Law and Legislative Committee.
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