CalPERS Monitor

California lawmakers extended collective bargaining rights to state employees, allowing CalPERS and CalSTRS to negotiate directly with public employee unions in benefit decisions without the approval of the legislature and taxpayers.

In 1999, Senate Bill 400 (passed by the legislature and signed by then-Gov. Gray Davis) significantly enhanced state worker benefits, adding an estimated $600 million in annual costs. The legislature granted these significant benefit increases without actually providing the necessary funding. Instead, lawmakers assumed they could cover the additional costs of the benefit increases with investment gains, a decision that led to massive growth in the state’s public pension debt due to CalPERS’ market losses in the 2000s.

California's public pension debt (funding shortfalls to pay for already promised pension benefits) skyrocketed to more than $200 billion, with $115 billion associated with CalPERS. Lawmakers’ hopes of stock market gains covering benefit promises they made in 1999 turn into the realization that these and other benefits cause massive debt and will require a significant infusion of funding that will inevitably have to come from taxpayers.

Following years of negotiations, the legislature and then-Gov. Jerry Brown passed the Public Employees' Pension Reform Act (PEPRA), which set guardrails on collective bargaining, placed crucial limits on retirement benefit formulas, increased retirement ages, capped the annual salary used for calculating pension benefits, and established equal sharing of employee contribution rates.

California pensions have made meager progress in addressing the state's massive pension debt. The CalPERS funded ratio has improved from around 60% in 2009 to 73.8%, but its total unfunded liability remains above $179 billion. CalPERS actuaries estimate that PEPRA has saved the state more than $5 billion and will save more than $25 billion over the next decade. The state is still decades away from eliminating pension debt and fully funding the retirement benefits promised to public workers.

California lawmakers are currently considering Assembly Bill 1383, which would undermine crucial PEPRA reforms. The bill would grant an unfunded pension benefit increase by expanding the definition of pensionable compensation. It would also remove the cost-sharing limits in PEPRA that protect taxpayers from runaway costs. AB 1383 would give public safety workers special exceptions, reducing their retirement age and granting them a higher level of pension benefits. Like the disastrous 1999 benefit increase, this law would add large costs for taxpayers that could easily balloon if the state’s investments experience another market downturn.