California passes pension reform laws
California has passed a pair of new laws that are expected to save the California Public Employee Retirement System (CalPERS) $100 billion over the next few decades. The new laws roll back some pension benefits approved in 1999, end the practice of “pension spiking” and provide more transparency in how CalPERS handles its business.
Gov. Arnold Schwarzenegger signed the two bills on Oct. 21. “Pension debt has become the silent thief of our treasury, robbing vital programs such as education, parks, public safety and environmental protection,” Schwarzenegger said in a statement. “With this reform, we will put California on the road to fiscal health.”
The bills roll back SB 400, the expansion of pension benefits adopted in 1999, for new employees. And, to end pension spiking — in which public sector employees artificially inflate their compensation in the years immediately preceding retirement in order to receive larger pensions than they otherwise would be entitled to receive — employee retirement rates now will be based on the highest consecutive three-year average salary instead of the single highest year.
To improve transparency, the legislation requires CalPERS, any time it adopts contribution rates, to report to the governor, treasurer and legislature in plain language the discount rate it uses to report pension liabilities and how those liabilities would be valued if a risk-free discount rate was used. It also must report the investment return it assumes for projecting contributions and how those contributions would change if a lower investment return assumption was used; information on the amortization of unfunded liabilities; and the market value of its assets and how that value differs from its chosen actuarial value for those assets.
Read more about California’s pension reform laws.