Unveiling one of his few major policy proposals Thursday, Democratic gubernatorial candidate Jerry Brown called for public-pension reform, embracing some of Republican Gov. Arnold Schwarzenegger's ideas for curbing the soaring cost of the state worker retirement system.
If elected, Brown said, he would ask current employees to contribute more to their pension plans and would raise the retirement age for new hires. The measures are core components of tentative deals Schwarzenegger has negotiated with half a dozen state workers' unions.
The candidate said he would end pension "spiking" by basing employees' pension benefits on their base salary and stop enlarging workers' payouts with bonuses, promotions, overtime and unused vacation in the final year of service. Under his plan, benefits would be based on the average of an employee's last three years instead of the final year. Payouts would be capped at a "reasonable" level, he said, declining to be more specific.
Brown also said he wants to establish independent oversight of pension funds, require special training for board members and curb or prohibit the use of placement agents — middlemen who advise funds on investments and receive a commission as payment. He said the practice costs pension funds millions of dollars and in a recent civil lawsuit accused one middleman, a former pension fund board member, of defrauding the fund of $40 million.
Racked by the recession, public pension funds have lost billions of dollars in investments, creating large unfunded liabilities that threaten to choke off funding for other government services. California taxpayers must make up the difference.
Brown's plan would also bar retroactive payments if benefits are ever enhanced and ban pension "holidays," periods in which governments reduce or cease contributions. He said he would pursue his proposed changes through a combination of legislation, regulation and collective bargaining "to return California to a fair but affordable pension system."
"I'm not going to blame public servants for problems that have been created by Wall Street hedge funds and mortgage sellers, but at the same time, as I did as governor, I know when it's time to tighten our belt," Brown told The Times, describing his proposals as a "framework."
The proposals could vex the labor unions whose money fuels his campaign, but they allow him to draw a contrast with his Republican opponent, Meg Whitman.
For new state hires, Brown would raise the retirement age from 55 to 60. Whitman would raise it to 65 for both future and current workers. Whitman also would retain pensions for current workers but adopt 401(k)-style plans for new hires. Although half a dozen states and the District of Columbia have taken that route, Brown says he's dedicated to maintaining pensions for all state workers.
Whitman's idea, he said, "is to cast everyone into the loving embrace of Wall Street."
Whitman spokeswoman Sarah Pompei, who has been criticizing Brown for a lack of specificity about what he would do as governor, said his "musings contain nothing that would fundamentally change the broken pension system that benefits the very public employee unions that are funding his campaign."
Service Employees International Union Local 1000, the state's largest public-employee union, has rejected Schwarzenegger's call to increase the amount that state workers pay into their pension plans, a key part of Brown's proposal.
In its latest offer, the union, which represents 95,000 state workers, agreed to make "temporary concessions" in exchange for a 5% pay increase in 2012. Among the other concepts it has agreed to: increasing the retirement age from 55 to 60 for some employees and a one-year pay cut of about 4.6% in exchange for eight hours of personal leave.
Dave Low, a lobbyist for the California School Employees Assn. who chairs a labor coalition on public pensions, said union leaders hope Brown, like Schwarzenegger, would bring his proposals to the bargaining table and not pursue legislation.
"Obviously, we don't love the proposals," Low said. "Any way you look at it, most of the things he's proposing will cost workers more and provide workers less in their retirement. But a lot of the unions are coming to grips with the fact that it's probably something they're willing to negotiate and put in place."
He pointed to the six unions that have already made concessions, hoping modest givebacks now will help avoid larger ones in the future.
"We're facing huge layoffs and furloughs," he added. "We realize when our employers don't have the money. The cost of public services are mostly people. We're realists."
Advocates of a pension-system overhaul welcomed Brown's proposals, many of which they have championed for years.
"He's right on. He's bulletproof," said Marcia Fritz, president of the California Foundation for Fiscal Responsibility, which backed an aborted ballot measure to enact similar changes. "I'm very happy he's embracing pension reform. It remains to be seen if he can handle the pressure to give the status quo what it wants."