In California, a proposed ballot initiative would automatically enroll state and local government employees in a 401(k)-styled defined contribution plan starting in 2019. If any state or local government agency wants to offer pensions to their workers instead, the matter would be put to a vote in the local community. The goal is to lower the state’s rising pension obligations by making a 401(k)-type plan the default for public employees across the state.
According to The Sacramento Bee:
The proposal would also apply to other retirement benefits, such as medical insurance, aiming to cut what the proponents say are soaring retirement costs that have driven some cities into bankruptcy. Other provisions would prohibit government employers from paying more than half the cost of employee retirement benefits without voter approval and block politicians and government agencies from suing or taking other actions to impede voter-approved ballot measures regarding employee compensation or retirement benefits.
Pete Constant from the Reason Foundation explains the act would enable voters to:
- Approve or reject pension plans
- Approve or reject pension benefit changes or enhancements for any current or future employee
Furthermore, the initiative requires government agencies to pay no more than 50 percent of all retirement benefit costs unless local voters approve an alternative amount. Public employees must contribute toward the balance of the cost, creating an equal share of the risks and liabilities. Constant explains:
This is an important element of the initiative because equal cost sharing equates to equal risk sharing. This stands in stark contrast to the status quo, in which all risk and debt liabilities are transferred to the taxpayers.
Some government agencies may want to continue to provide future employees the level of pension benefits now offered to current employees, including unequal cost sharing - and they can, as long as voters explicitly approve these benefits.
If an agency finds that their voting residents don’t approve of a defined benefit plan for new employees, the act allows those agencies to use the collective bargaining process to agree on other types of retirement benefits, potentially including the 401(k)-style defined contribution plans already being offered by CalPERS, CalSTRS and other pension plan providers, without voter approval.
Read Constant’s analysis here.