California's Latest Bid for Pension Overhaul
Pension law in the state of California is under the process of being overhauled. Under these circumstances, it is interesting to note that supporters who want the overhaul process to take effect have proposed two different versions of the ballot initiative. It is important to note that one version will be chosen from the two for the November 2012 ballot. Here is a brief synopsis of the main provisions mentioned in both the versions that are being proposed at present.
Before understanding the nature of the proposed provisions, it is important to note that these proposed changes are meant to affect employees of the state government, local government, school and special district as well as those of the university. Moreover, both versions classify employees into two categories, namely current employees and those hired after July 1, 2013.
With regard to the employees hired after July 1, 2013, the first version of the proposed initiative states that both employers and employees will make equal contributions, which could be up to 6 percent of the base pay for non safety workers and up to 9 for those employed as police officers etc in the area of safety. In other words, they want to restrict pension fund debt and liability, and seek a defined but contribution based pension instead. Additionally, this version promises a death and disability fund, over and above the pension fund, whilst also ensuring that those without Social Security are eligible for replacement benefit.
The second version, on the other hand, for new workers, proposes a hybrid pension plan, which is part defined, part 401(k) style and part Social Security. This plan ensures that employees will get 75% of replacement income after they complete their full career. Moreover, this plan also stipulates the exact nature of full career for each professional and fixes the age of retirement when he or she will get the benefit. There is also a cap on pension, which includes all increases to cost of living and which is quantified at $100,000. Here again, the plan calls for contribution by both employers and employees.
With regard to current employees, the first version amends the existing provision in such a way so as to attempt ending the current spiking of pensions. In this version, taking the average of the salary drawn during the last three years will help resolve the spiking problem. The second version, however, does not call for any changes to the pension scheme for the existing employees. An important point to note in both versions is that there is a cap on government employer funded schemes, especially where they are funded below 80%. The cap is 6% for non safety and 9% for safety employees. Moreover, it also calls for a sharing of cost by employers and employees in equal amounts, except in cases where it is below 80% funded, where the employee will have to bear more. Also, the new versions proposed for current employees provide them with an option of choosing lesser benefits or opting for the scheme laid out for newer employees.
Finally, the proposed initiative states that where employees are convicted of any felony, they will lose out on the employer contribution of the pension.
Before understanding the nature of the proposed provisions, it is important to note that these proposed changes are meant to affect employees of the state government, local government, school and special district as well as those of the university. Moreover, both versions classify employees into two categories, namely current employees and those hired after July 1, 2013.
With regard to the employees hired after July 1, 2013, the first version of the proposed initiative states that both employers and employees will make equal contributions, which could be up to 6 percent of the base pay for non safety workers and up to 9 for those employed as police officers etc in the area of safety. In other words, they want to restrict pension fund debt and liability, and seek a defined but contribution based pension instead. Additionally, this version promises a death and disability fund, over and above the pension fund, whilst also ensuring that those without Social Security are eligible for replacement benefit.
The second version, on the other hand, for new workers, proposes a hybrid pension plan, which is part defined, part 401(k) style and part Social Security. This plan ensures that employees will get 75% of replacement income after they complete their full career. Moreover, this plan also stipulates the exact nature of full career for each professional and fixes the age of retirement when he or she will get the benefit. There is also a cap on pension, which includes all increases to cost of living and which is quantified at $100,000. Here again, the plan calls for contribution by both employers and employees.
With regard to current employees, the first version amends the existing provision in such a way so as to attempt ending the current spiking of pensions. In this version, taking the average of the salary drawn during the last three years will help resolve the spiking problem. The second version, however, does not call for any changes to the pension scheme for the existing employees. An important point to note in both versions is that there is a cap on government employer funded schemes, especially where they are funded below 80%. The cap is 6% for non safety and 9% for safety employees. Moreover, it also calls for a sharing of cost by employers and employees in equal amounts, except in cases where it is below 80% funded, where the employee will have to bear more. Also, the new versions proposed for current employees provide them with an option of choosing lesser benefits or opting for the scheme laid out for newer employees.
Finally, the proposed initiative states that where employees are convicted of any felony, they will lose out on the employer contribution of the pension.