A report issued by the Little Hoover Commission, a bi-partisan, independent state agency, this week proposes that California can only fix its pension problems by reducing benefits for current workers, while requiring employees to contribute more towards their benefits. In addition, they propose moving California's pension system to a "three-legged hybrid system" consisting of a small defined-benefit plan, Social Security, and an employee-matched 401(k) - a system modeled after the FERS plan adopted by the federal government in 1987.
The report notes that, "public employees might appear to have little
incentive to push for reforms, yet they will pay a price for inaction:
salary freezes, layoffs, increased payroll deductions and the threat of
a city or county bankruptcy. Doing nothing to current pension
obligations will cost public employees everything. A pension cannot
grow without a job attached to it."
The commission began this work last April and among their findings are the following:
The commission began this work last April and among their findings are the following:
- Pension costs will crush government. "In another five years, when pension contributions from government are expected to jump and remain at higher levels for decades...there will be no debate about the magnitude of the problem"
- The math doesn't work. Banking on high investment returns, dropping the retirement age, enhancing benefits, deferring payments all contribute to a "dangerously underfunded" system.
- The system lacks discipline. Rather than provided retirement for workers, the system is now premised on deferred compensation- thus helping workers to invest aggressively to accumulate wealth.
- The system lacks oversight and accountability. California's pension system covers 1.6 million workers. In addition 2 million more workers are covered by local plans. The collective bargaining environment allows numerous employee unions within each entity to negotiate for benefits, "resulting in thousands of different retirement packages across the state."
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