State looks at hybrid retirement plans

January 25, 2012 8:38:31 PM PST
The pensions of employees who work for the state of California could look a lot different under a proposal to make them a hybrid pension plan. It's very controversial.

The goal of a hybrid retirement plan is to spread more of the costs to workers, rather than taxpayers.

Under increasing public and budget pressure to change retirement benefits for state and local government workers, the Legislature is finally holding hearings on a hybrid plan, which combines a 401k-type plan with public pensions. There not a bill with an actual proposal yet, but experts from around the country told California lawmakers how similar plans have worked in other states.

401k-type plans are known as defined contributions, or DCs, pensions are known as DBs, defined benefits.

"The DC allocation typically provides less of a return than what most people would get in a DB plan," said Diane Oakley from the National Institute on Retirement Security.

DCs, or 401k-type plans, have been unpopular with labor groups because of the volatility of the stock market. While the largest public employee union is open to a hybrid plan, it hopes whatever proposal comes out of committee doesn't rely too much on 401ks because of what many retirees are experiencing today.

"There's a national study that said they have less than 25 cents on the dollar for what they need to retire comfortably. The 401k experiment hasn't worked. Look at your own 401k, are you ready to retire?" said Terry Brennand from the Service Employee International Union.

But critics say public pensions have been too generous, even though most government retirees receive less than $30,000 a year. They point out a hybrid would relieve the state budget of crushing pension obligations.

One expert testified, though, California may not achieve great savings by converting because any new plan can only be legally applied to new hires.

"A hybrid does not necessarily produce any more cost savings than any other plan," said Keith Brainard from the National Association of State Retirement Administrators.

The hearing is the start of what's expected to be a long fight.

"The unions have too much say in this town. But here's the reality... we can't fund education at the same time we're funding high-speed rail and a huge pension deficit. Something's got to give," said Tom Del Bacarro from the California Republican Party.

Gov. Jerry Brown has proposed a hybrid retirement plan, but he hasn't found a lawmaker -- at least not yet -- to sponsor it in bill form.


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