Study predicts California pension savings with hybrid plan


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Switching California state government pensions to a hybrid system that provides a modest monthly check plus a 401(k)-type savings plan could save taxpayers about $250 million right away and generate billions of dollars in savings in future years, according to a new study by a pension reform organization.

Savings would be much higher, roughly $2 billion, if state workers were required to pay up to half of the cost of their early retirement health insurance premiums, said the report released Friday by the California Foundation for Fiscal Responsibility in the Sacramento suburb of Citrus Heights.


Immediate savings at the local government level would be $3 billion to $4 billion a year, the report said.

Those numbers could more than double if state and local pension funds fail to achieve annual investment returns of between 7% and 8%, the report said.

‘Our analysis shows that substantial savings can be achieved if the state and local governments provide retirement benefits comparable to those offered by the federal government,’ said one of the authors of the study, Michael Genest, a former state director of finance.

Government should ‘share the cost and risk with their employees just as the federal government and private companies do,’ Genest said.

The findings in the report, Genest said, could be used by lawmakers, the governor and the public as a basis for developing either legislation or ballot measures aimed at cutting California taxpayers’ long-term obligations to pay for burgeoning public pension costs. According to the Foundation for Fiscal Responsibility, government agencies are carrying future liabilities of hundreds of billions of dollars for obligations to pay pensions and healthcare to retirees.

The state’s biggest pension fund, the California Public Employees’ Retirement System, has criticized earlier installments of the foundation’s research as flawed.

‘The study is based on artificial models and doesn’t use real data,’ the CalPERS analysis said. ‘The study falls short on specifics and lacks comparative data.’

Calls for overhauling state and local pensions have been growing in volume for the last two years. Some benefits to state workers were reduced in late 2010 in a deal negotiated with the state Legislature by former-Gov. Arnold Schwarzenegger.

Earlier this year, Gov. Jerry Brown telegraphed to Republican lawmakers his willingness to make further changes as part of the budget negotiations for the spending plan that took effect on July 1. However, no deal was reached.

Brown is still developing his pension proposal, but it would be premature to spell out any details, said spokesman Evan Westrup.

In the meantime, various pension overhaul advocates are attempting to qualify initiatives for the 2012 ballot.


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-- Marc Lifsher