THE CALIFORNIA Public Employees' Retirement System is in trouble and it wants state and local governments (that is taxpayers) to bail it out.

The $179 billion pension system is feeling the effects of a bad economy with a loss of more than 25 percent since the start of its fiscal year, last July. It would be even worse off had it not been for market gains in the last few months.

The weak economy has hurt CalPERS, just as it has drained most individuals' 401(k) and other investment funds. That's where the similarity ends.

Under state law, when CalPERS pension funds are not sufficient to pay for public employees' generous defined pension benefits, taxpayers are forced to make up the difference.

That is the fundamental problem with defined benefits. Generous pension promises are not sustainable, especially in a weak economy. Perhaps if the guaranteed pension benefits were considerably lower, they could be guaranteed.

But there is no way current public employee pensions can be maintained without placing a huge tax burden on California workers, who already face the possibility of major tax increases to maintain basic state services.

The only way generous defined pension benefits can be fiscally sound is if the economy does not suffer any major setbacks, and that is unrealistic.


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It is fiscally irresponsible to promise a large and growing benefit when it is impossible to predict the economic future. That is why almost all private companies have dropped their defined pensions and replaced them with 401(k) or similar defined contribution plans. Some companies have even ceased making 401(k) contributions.

Instead of demanding taxpayers to pay more into its pension system, CalPERS should be urging higher employee contributions to the pension fund when contracts are negotiated.

That would be a short-term solution to the problem of a shrinking pension fund. But the long-term solution is to replace defined benefit programs with defined contribution plans.

Government entities and their employees could together contribute to 401(k) and other such investments to be used by retirees. No longer would taxpayers be on the hook to make up for shortfalls in pension funds.

If guaranteed pensions were significantly lower than they are today, perhaps they would be fiscally responsible. But that is not the case.

Defined pension and health care benefits for state, county and local public employees have been heading for trouble for many years.

The steep recession has made matters worse. It also has demonstrated the fiscal irresponsibility of making generous pension promises to public employees, relying on taxpayers to come to the rescue when the economy declines.