Forget Scott Walker in Wisconsin and John Kasich in Ohio. Public-employee unions have a new bete noire to demonize, another governor threatening to challenge their power — and the source of their power. Only this time, it’s not a Republican, but a Democrat from one of the bluest states in the nation:
Gov. Jerry Brown will unveil a new pension plan for state workers Thursday, which is expected to raise the retirement age to 67 for new hires.
It would create a mandatory hybrid retirement system that would include some guaranteed benefits, but also a 401K-style plan that would be subject to the stock market and other investments.
It would also ban employees from spiking their compensation by piling up overtime and other benefits as they near retirement.
In one sense, this isn’t all that surprising. Brown presides over a state budget that is an utter disaster, largely because of the massively underfunded pension systems for state employees. Any rational executive would have to address this problem in order to put the state back on a realistic fiscal footing, but Brown’s predecessor — the nominally Republican Arnold Schwarzenegger — didn’t exactly demonstrate courage in challenging the state’s PEUs on pension reform.
However, even with that said, Brown’s gambit is notable for both his courage to go after the PEUs and the type of reform he’s proposing. Most states use defined-benefit models for their public-sector pensions, which is why their systems are nearing collapse. Brown moves significantly (although not entirely) towards a defined-contribution plan that essentially transforms pension systems into 401K instruments, as KNX reports. Also, the elimination of “spiking” takes a big step towards eliminating the kind of corrupt actions seen in California, where gaming pensions has become a common strategy in the final years of employment.
That has national ramifications, too, in terms of entitlement reform. With Brown pushing a privatized pension system for public-sector workers, it will be somewhat more difficult for Democrats to demagogue Republicans who propose at least partial (and voluntary) privatization of the Social Security system. Herman Cain has built his entitlement reform in this area on the so-called Chilean model, which conservative economists cheer, and which actually didn’t go quite as far as Brown’s proposal appears to do.
Needless to say, the PEUs aren’t going to take this lying down:
A union-funded pension reform group says the plan targets state workers.
“This is not a growing problem with pensions. It’s a growing problem of our economy failing and the pension programs not being as solvent as they were,” Steve Maviglio of Let’s Talk Pensions told CBS2. “So you’re actually taking a baseball bat to swat middle class Californians who put a lot of money back into our economy.”
It only “targets” state workers because the pension for state workers is the problem. Furthermore, after all the stories about six-figure pensions for public servants that Californians have seen, Maviglio’s argument is likely to fall flat with voters. Union money won’t fall flat in Sacramento, however, and you can bet that the PEUs will fight with everything they have to keep the pension system teetering towards collapse — and don’t be surprised if Democrats outside of California might join them.
Meanwhile, Californians might take heart from Wisconsin’s example. Americans for Prosperty and MacIver Institute explain that Walker’s reforms are working to fix their budget woes (via The Right Scoop):