Why It Matters
California is considering legislation that would reverse key elements of a 2012 pension reform law, a move that could substantially increase unfunded liabilities for the state’s two largest public pension systems and shift costs to taxpayers and local governments already facing significant budget pressures.
What Happened
Assembly Bill 1383, sponsored by public safety unions, passed the state Assembly on a 70-2 vote and now awaits Senate consideration. The measure would loosen restrictions on pension spiking—the practice of boosting final salary calculations to increase retirement benefits—and ease other limits imposed by the 2012 California Public Employees Pension Reform Act.
The 2012 reform, championed by then-Governor Jerry Brown, included curbs on pension spiking, higher employee contribution requirements, reduced eligibility for future employees, and lower benefit formulas. The changes followed the state’s budget crisis during the Great Recession, which drained both the state’s unemployment insurance reserves and the earnings of the California Public Employees Retirement System and California State Teachers Retirement System.
Public safety unions argue the reforms have served their purpose and saved billions of dollars. Assemblymember Tina McKinnor, the Inglewood Democrat carrying the bill, supports the measure on behalf of the unions’ coalition. However, a coalition of local governments has opposed the legislation, citing concerns about potential budget impacts and rising unfunded liabilities.
The push to loosen the reforms reflects a broader tension in California over pension obligations. The current effort stands in sharp contrast to the fiscal crisis that prompted the original 2012 law. At that time, the state’s unemployment insurance fund had exhausted its reserves during the recession, leaving California indebted to the federal government.
By the Numbers
70-2 — Assembly vote margin for AB 1383
2012 — year the pension reform law was enacted
14 years — time between the 2012 reform and the current effort to reverse key provisions
Over $20 billion — amount the state’s Unemployment Insurance Fund currently owes the federal government
Zoom Out
California’s struggle with pension costs reflects a national challenge facing states and municipalities. Public employee pension systems across the country face significant unfunded liabilities, a problem that intensified during the Great Recession and has persisted for years. States have pursued various approaches to address the issue, from benefit adjustments to contribution increases to reforms limiting future liabilities.
The 2012 California pension reform was hailed as a model for other states seeking to address growing obligations without wholly eliminating pension protections. The fact that major Republicans joined Democrats in voting for AB 1383 suggests the political landscape around pension policy has shifted since the post-recession era when austerity measures dominated budget debates.
What’s Next
AB 1383 now moves to the Senate, where it faces opposition from local government groups concerned about long-term budget impacts. The Legislature will need to weigh union demands for benefit restoration against warnings from municipal officials about escalating unfunded liabilities. A Senate vote would likely determine whether the measure advances to the governor’s desk for final approval.