In summary
California police and firefighters will be able to retire earlier and earn more generous pensions under a bill lawmakers sent to Gov. Gavin Newsom. It’s potentially expensive and government agencies are urging him to veto it.
The ink isn’t dry on an expansion of pension benefits for California police and firefighters — in fact, Gov. Gavin Newsom hasn’t even signed it into law — but unions are already negotiating contracts as if their members could soon be eligible for more lucrative retirement formulas.
It sweetens the perks for public safety employees by allowing them to retire with full benefits at 55 rather than 57, and it allows their unions to bargain for more generous pension formulas by increasing the maximum accrual rate to 3% per year of service from today’s 2.7%.
It also includes a provision that will boost retirement income for all higher-earning public employees by increasing a cap on how much they can receive from their pensions.
The Senate passed the measure by a vote of 33-0. It passed by a similarly overwhelming majority of 70-2 in the Assembly.
“I’m supporting this because the men and women who run toward fire, violent crime and life threatening emergencies are not working ordinary jobs,” said Sen. Suzette Martinez Valladares, a Republican representing Lancaster.
If Newsom signs Assembly Bill 1383, it will mark the state’s first enhancement of public employee pensions since former Gov. Jerry Brown championed a law that required public employees hired after 2013 to work longer for full benefits and kick in more money from their paychecks to fund their retirements.
Brown’s law followed the back-to-back financial crises of the dot-com bust and the Great Recession, which obliterated tens of billions of dollars of assets in California pension funds and set off fears that they could become insolvent.
California’s largest pension fund has not fully clawed out from its recession-era losses. The California Public Employees’ Retirement System as of July 1 held assets worth $637 billion, or about 85% of what it owes to its 2 million members over time.
CalPERS over the last decade has ratcheted up the rates it charges cities, counties and the state, both by requiring employers to pay down losses faster and by revising its earnings targets to acknowledge that it expects to earn less money from investments. Payroll and employer contributions to CalPERS totaled $14.9 billion in the 2017 financial year; by 2025, the number climbed to $30.2 billion, according to the pension fund’s annual financial reports.
The new retirement bill would require government employers and employees to contribute an additional $282 million to CalPERS to cover the lower retirement age and increased cap on pensionable income. The sum is expected to increase by hundreds of millions of dollars more if all public safety agencies agree to pay the maximum benefits, according to the California Department of Finance.
The finance department, which reports to Newsom, recommended that lawmakers reject the bill.
The measure would also apply to pension systems outside of CalPERS, including 20 that are managed by counties.
Cities, counties fought pension expansion
California local government agencies united in opposing the measure. They’re now hoping Newsom will veto it.
“We want to pay our police and fire and all our employees all we can, but it has to pencil out at the end,” said Napa Mayor Scott Sedgley, who is a retired Napa firefighter.
Unions were confident the measure would pass because it sailed through every vote in the Legislature, with Republicans joining with Democrats in arguing it’s an important investment in public safety.
Some local police and fire unions insisted on including clauses in new contracts that reopen bargaining over retirement benefits if Newsom signs the bill. One was in Napa, where the city recently struck a five-year contract with its firefighter union that includes a reopening pensions connected to the bill that just passed the Legislature.
The unions “don’t want to miss the year, two years, or whatever they’re locked into their agreement,” said attorney Michael Youril of the firm Liebert Cassidy Whitmore.
“I would say there’s going to be immense pressure” on local government agencies to increase retirement benefits to the maximum rate allowed, he said.
Unions are allies to Gov. Newsom
The bill would benefit public safety unions that have been critical allies to Newsom, including California Professional Firefighters and the California Correctional Peace Officers Association. Leaders of the firefighter union in particular lobbied for the lower retirement age by pointing to the toxic hazards their members face, which can shorten their careers and lives.
The unions stress that the bill does not fully unwind Brown’s pension law. Until that law took effect, police and firefighters could retire at 50 with even more generous pension formulas. They characterize the current bill as a modernization of the one Brown signed.
Revising the pensions has been the top legislative priority for the Peace Officers Research Association of California, an organization that represents California police unions. The association’s president, Brian Marvel, said the possibility of a Newsom veto worries him.
“We’re really hoping that the governor doesn’t want to go down that path because we really feel that this is a great opportunity for him to leave office addressing a huge issue within public safety,” Marvel said.
Recruiting and retention have been a problem, Marvel said.
“We want to make sure that we have the necessary resources to be able to address what the community’s needs are,” he said.
If the bill doesn’t get past Newsom, Marvel said law enforcement groups “would have to have serious conversations regarding his veto” if Newsom seeks the presidency.
