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Brown rejects Democratic pension plan

7:03 PM, Jul 3, 2012   |    comments
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Tough battles are everywhere these days at the state Capitol, but changing public employee pensions is probably the toughest -- which should mean there's no surprise talks between Democrats and Gov. Jerry Brown hit a stumbling block Monday night.

That's when, in a Tuesday e-mail from Brown's spokesman, "the governor could not agree to some of the changes in the pension counterproposal" offered by Democrats.

And with that, talk of a deal by Friday came to an end... meaning legislators will take a one month summer hiatus with the policy and political albatross of pension still tied around their necks.

Actually, Brown is asking them to keep their vacation activities to a minimum.

"He has asked the Legislature to continue to work with him over the recess to resolve the substantial differences," wrote gubernatorial press secretary Gil Duran in his Tuesday afternoon email that officially set tongues wagging about an impasse.

But not everyone is willing to go that far.

"Rumors of a breakdown in negotiations over pension reform are greatly exaggerated," said the official statement from Senate President pro Tem Darrell Steinberg.

And others in the Capitol on Tuesday seemed to agree that there's much common ground on changes to a public employee pension system that, regardless of political persuasion, almost everyone seems to agree is in need of changes that help save money.

But here's the thing.  There may be more items on which folks agree than disagree... but the items in contention are the toughest nuts to crack.  And so accolades of agreement should be tempered by the fact that, so far, it's mostly been the 'low hanging fruit' of an eventual deal.

Still unresolved, to hear various legislative and interest group sources tell it, are the same two issues that were red flagged from the get-go: retirement age and the governor's quest for a "hybrid" retirement system for future workers.

The "hybrid" debate has gotten a lot of attention, and rightly so. It would, depending on the details, fundamentally change the benefits promised to those who will come to California government service in the future.

"A hybrid plan is what the governor wants, a hybrid plan is what we're working to give him," says Assemblyman Warren Futurani, chair of the pension conference committee.  "The exact same architecture that he asked for? It's probably not going to be that."

Translation: Brown's idea (contained in his late 2011 pension proposal) of a combo pension/401(k) style system is probably dead.  Democrats want to replace the 401(k) portion of the "hybrid" model with what's called a cash balance benefit.  Loosely defined, that's a program that promises money based on market conditions more than years of service.  At retirement, the employee has a fixed amount that they can either take over time, or as fixed lump sum.

But cash balance plans are, by legal definition, "defined benefit" plans -- the same as traditional pensions -- and not "defined contribution" plans like a 401(k).  Democrats seem to prefer that the cash balance proposal kick in for any salary above $100,000, which has become the public threshold for excessive annual pension benefits.

Retirement age has also been hotly debated, and legislative Democrats say their current thinking is that public safety employee retirement be moved to age 57 -- still more generous than most retirement options -- and other government workers be told than 67 is the age for full benefits.

Again, Democrats believe they're on the same track as the governor.  "The concept is based on the 12-point plan by the governor," said Assemblyman Futurani on Tuesday morning.

But unions seem generally displeased with all options being discussed.  "Both the legislative and governor's proposals are deeply flawed," said Dave Low of the union-backed Californians for Retirement Security.

If public employee unions continue to oppose the governor's efforts, then what's the final political outcome?  Hard to say.  No less a political handicapper than Brown himself has said that voters aren't going to be thrilled about the November tax initiative if they haven't seen pension changes in Sacramento.

And a final, interesting note.  Assemblyman Futurani confirmed this afternoon what many have said privately: legislative Democrats are seeking statutory changes in public employee pensions -- that is, changes they can enact on a party-line vote in the Capitol, unlike constitutional changes (which Brown and Republicans have suggested) that take approval by the voters.


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