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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