New Research: Pension Gutting Proposals will Harm Low-Wage Workers and cost Taxpayers More

New national and academic research reveals that the hybrid pension plans that Gov. Jerry Brown and Republicans want to force on California’s public employees would strap taxpayers with higher costs and place an unfair burden on the state’s lowest paid public employees. According to a new University of California, Berkeley, study, the hybrid pension plan included in Brown’s pension proposals would “have a disproportionate impact on the retirement security of lower wage workers and those in occupations requiring higher levels of physical activity.”

The governor’s plan, along with a pair of proposed pension-gutting ballot measures, would force public employees into a hybrid plan that combines stable defined benefits with risky 401 (k) style investment plans. “401(k) type plans entail a host of risks and costs that lower-wage workers are ill-equipped to absorb,” the Berkeley study reports. The analysis also finds that Brown’s proposal to raise the minimum retirement age to receive a full California pension to 67 could “have significantly greater impacts on workers at the bottom of the wage spectrum.” “When combined with important differences in career timing and life expectancy by income and occupation, the costs of this policy will be borne disproportionately by low-wage workers and blue collar workers who start their working lives earlier and who die younger than professional workers,” the study finds. Read the full report.

Meanwhile, a new national report concludes that defined benefit pension plans with reasonable fixes, including many long supported by public employees in California, are the best option for taxpayers. According to the Center for American Progress Action Fund, “the smart money in any state pension-reform plan would go toward smaller-scale changes.” “While proponents argue that these alternative defined-contribution plans are good for taxpayers, in most cases taxpayers are better off making relatively minor reforms to the current defined-benefit pension system rather than scrapping it entirely. Why? Because the defined-benefit pensions held by public employees are much more cost effective than 401(k) style retirement plans, costing roughly half as much to provide the same level of retirement benefit to workers such as police officers and firefighters, librarians and teachers, and other public-sector workers.” Read the entire brief.