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California Pension Reform Sparks Debate

The California legislature and Governor Jerry Brown recently
reached a deal
that will bring substantial changes to the state’s pension
system. Some of the changes include a cap on annual pension payments, a
requirement that new employees pay half of all pension costs, and raising the
age of retirement. The deal also ends the controversial practice of “spiking” whereby
employees are given big raises during their last year of employment to raise
their pension benefits.

Although hailed as a landmark achievement by the Governor,
some have criticized the measures by stating that they don’t go far enough.
Among the specific charges are that the plan does not involve the creation of a
hybrid 401(k) plan and that it fails to reduce healthcare costs for state
retirees.

California’s two main pension funds are currently
underfunded by around $150 billion, with an additional $60 billion to pay for
health and dental benefits for retirees and current employees. Governor Brown
claims that the savings from the new plan will amount to $30 billion.

Pension reform seems here to stay, and will
certainly be a hot topic in both the public and private sectors in years to
come. Employees should always remember to consult an attorney when faced with
challenges to their benefits to protect their retirement and financial
security.