CALIFORNIA'S PUBLIC employee pensions, the most generous in the country, will strangle funding for needed public services unless officials reduce future retirement benefit accruals for current workers.
That's the well-reasoned conclusion of the Little Hoover Commission, a bipartisan watchdog group whose current members were appointed by the state Legislature and former Gov. Arnold Schwarzenegger. "The situation is dire," commissioners reported Thursday following a yearlong investigation. "State and local governments have made a promise to workers they can no longer afford."
Let's be clear: The commission is not suggesting taking away benefits workers have already earned. It's proposing reducing, not eliminating, the rate at which current workers accrue pension benefits for their future labor. It's a change common in the private sector when companies realize their pensions are too expensive.
To ensure workers have enough in retirement, the commission also proposes adding 401(k)-style savings plans and Social Security for roughly half the public-employee workforce that doesn't already participate.
Efforts to reduce benefits for future employees are fine. But that will not make a meaningful difference for decades, the commission concluded. The problem "cannot be solved without addressing the pension liabilities of current employees."
As commission Chairman Daniel Hancock told me, "You can't fix
He also knows public-employee union leaders are sure to challenge any rollback efforts in court. Many politicians will dismiss the idea. And it remains to be seen whether Gov. Jerry Brown understands the urgency and necessity of radical action. But it's the only way out.
The commission's 89-page assessment provides a comprehensive analysis of the state and local government pension crisis -- must reading for politicians and taxpayers who wants to understand the history and seriousness of the problem.
Public employees should read it before demanding perpetuation of pension benefits unseen in the private sector. As the report notes, public-employee pensions have been transformed for many from a mechanism for providing retirement security into a vehicle for accumulating wealth.
"Today, a 30-year state worker retiring at age 63 can expect to receive 75 percent of the single highest paid year -- every year for the rest of his or her life. When drawing full Social Security benefits, the same worker can expect to earn more money in retirement than he or she did on the job."
The system also enables early retirement. With police and firefighters eligible for pensions at age 50 and other government employees as early as 55, some will receive retirement checks for more years than they worked.
Meanwhile, payments on the pension debts are mounting, the report concludes. California governments face the prospect of making 40 to 80 cents in pension payments for every dollar spent on salary.
The report calls for voter approval of future pension increases; elimination of pension spiking, in which workers use items like unused vacation and sick leave to boost their retirement pay; reforms to end accounting practices that understate the severity of the "dangerously underfunded" retirement plans; and changes in the makeup of pension boards, which are usually dominated by the workers who stand to benefit from the system.
But rolling back future accruals for current workers is the key. In making the proposal, the commission is challenging conventional legal wisdom that pension benefit formulas for California government workers are locked in for life on the day they start work.
"Many consider this issue settled by the courts, though the courts have provided openings to modify pensions for current public employees," according to the report. "The extent of these options remains unclear, making this an area of law that must be clarified."
While taxpayers are stuck with the debt, public workers should realize money for their future employment is at stake. "Doing nothing to current pension obligations will cost public employees everything," the commission concludes. "A pension cannot grow without a job attached to it."