California lawmakers reverse pension reform, raising costs 65 cents per dollar

California lawmakers voted with near-unanimous support to reverse the state's 2012 pension reforms, lowering the retirement age for public safety workers and raising the pensionable pay cap to as much as $249,075.

"The cost of the benefit enhancement will likely spike during economic downturns, which could result in sharp cuts to public services, including law enforcement," the California Actuarial Advisory Panel warned in an analysis of the legislation.

One bill reduces the retirement age for public safety employees hired after the Brown reforms to 55 from 57 and raises the pensionable earnings ceiling to $249,075 for public safety officers and $184,500 for other workers, up from $191,679 and $159,733 respectively. A separate measure allows highway patrol officers and firefighters eligible to retire to collect both a salary and pension simultaneously, with accrued benefits earning interest at a guaranteed rate set by the California Public Employees' Retirement System.

The changes threaten to repeat the cycle that followed the dot-com era, when retroactive benefit boosts left pension funds severely underfunded after the 2008-09 financial crisis. For every dollar a California Highway Patrol officer earns in compensation, the state now contributes 65 cents to his pension — a ratio that will climb further under the new rules.

The bills passed with near-unanimous support in the state Assembly, reflecting the political influence of government unions in Sacramento. Governor Gavin Newsom has not taken a public position on the legislation, though analysts expect him to sign it as he weighs a potential presidential run.

A Pattern Repeated

The 2012 reforms championed by former Governor Jerry Brown were themselves a response to the excesses of the late 1990s, when Democrats used the dot-com stock market boom to let highway patrol officers retire at age 50 with benefits equal to 90 percent of their final pay. The subsequent market crash and financial panic left the state's pension system deeply underfunded, a hole that taxpayers have been filling ever since.

The average pension for a California Highway Patrol officer who has worked 30 years stood at $114,147 in 2024. The state's Highway Patrol, which offers $122,500 in starting pay, received roughly 33,000 applications last year, undercutting union arguments that the 2012 reforms made it hard to recruit workers. State employment has grown by 84,000 positions, or 34 percent on a per capita basis, since the reforms took effect.

The $249,075 Ceiling

The higher earnings caps will primarily benefit high-earning employees, allowing more to retire with pensions exceeding $200,000 a year. Similar programs at the local level have proven costly and prone to abuse. In Los Angeles, many participants in a comparable program took disability leave, earning salaries and pensions while not working.

The California Actuarial Advisory Panel's warning carries particular weight given the state's history. If a stock-market downturn materializes, the cost of the enhanced benefits could force sharp cuts to public services, including the law enforcement agencies the bills are meant to support.

This article is for informational purposes only and does not constitute investment advice.