THE ISSUE: Gov. Jerry Brown last week unveiled his 12-point plan to overhaul California's public pension system. If passed, Brown's plan would switch the pension program for new hires from a defined-benefit plan to a partly defined contribution plan, and raise the retirement age for most workers outside public safety from 55 to 67.
Does Brown's pension reform plan go far enough in curbing costs?
Ben Boychuk: No
Gov. Brown's plan is a start and possibly the most viable reform the wily old Democrat could hope to pass. When it comes to California's public pension crisis, something may be better than nothing. Certainly the status quo is unacceptable.
Brown's plan would make some necessary changes. Raising the retirement age, creating a hybrid plan that combines defined benefits with defined contributions, and eliminating "airtime" (which lets workers buy service credits to boost their pensions) and other pension-spiking schemes are all laudable reforms.
But even if all of Brown's 12 points pass the Democratic-controlled Legislature and the odds are long taxpayers still have a massive bill coming due.
What's the problem?
Jack Dean, the proprietor of the California Public Policy Center's pensiontsunami.com and a man who has forgotten more about the minutiae of pension financing than I could ever hope to know, says the plan is "bold for Brown, but doesn't go far enough to deal with the continuing growth of the already huge unfunded liability."
Depending on who's crunching the numbers, that liability could reach an astonishing $884 billion. A Little Hoover Commission report published in February found that the 10 largest public pension plans in the state had a collective $240 billion shortfall over the next 30 years. That same report endorsed something like the hybrid plan Brown now advocates, but underscored the fact the state's pension systems must control costs by reining in pensions for current workers.
In short, real reform requires tackling the far more perilous problem of existing pension obligations something the public employee unions are simply unwilling to do.
For an idea of what such reform might look like, pay attention to the ballot initiative campaign unfolding in San Diego. Councilman Carl DeMaio, who is also running for mayor, has qualified a measure for the June ballot that would shift all new city hires to a 100 percent defined-contribution plan.
But the real kicker is the initiative's five-year freeze on pay levels used to tabulate pensions for current city employees. If DeMaio's measure succeeds at the ballot box and survives the inevitable court challenges, it could save San Diegans between $1.2 billion and $2.1 billion over 30 years and be a model for saving Californians tens of billions of dollars in long-term obligations.
Brown spoke cryptically of DeMaio's efforts last week. "I'm not sure there might not be greater latitude in terms of changing pension benefits, but I know we can do what I proposed," he said.
Yes, we can. But it's not good enough.
Ben Boychuk is associate editor of the Manhattan Institute's City Journal (www.city-journal.org/california).
Pia Lopez: Yes
The financial crisis of 2008-09 was a major setback for even the best structured pension plans. But California is in a class of its own.
First, the state and local governments over-depended on a rising stock market and either reduced or did not make annual employer pension contributions over many years. Employees got a pass on making contributions, too.
Second, California is among a handful of states that granted retroactive benefit increases without funding them the infamous SB 400 of 1999, authored by Sacramento Democrat Sen. Deborah Ortiz, co-authored by Anthony Pescetti, R-Sacramento, and Darrell Steinberg, D-Sacramento. It passed the Legislature with only seven no votes. That set California on a path to pension crisis.
Gov. Jerry Brown's bold plan addresses these problems.
It applies to all California state, local, school and other public employers.
It prohibits retroactive SB 400-type pension increases, which Brown rightly calls "irresponsible practice."
It makes retirement pensions a shared, equal responsibility between employer and employees.
It requires employers and employees to make annual contributions no more payment holidays.
For new employees, Brown's plan does what the federal government did 25 years ago creates a three-tiered retirement plan based on roughly equal sources of income for retirees: a modest pension, an employer-matched 401(k) and Social Security. Brown is right that this "strikes a fair balance between a guaranteed benefit and a benefit subject to investment risk."
The Social Security piece is extremely important. Half of all public employees in California including teachers, police, prison guards and firefighters and many local employees do not participate in Social Security. That places a heavier burden on state and local governments to provide retirement benefits. That has to change.
It is time to extend Social Security to all of California's public-sector workers.
Brown's plan also removes egregious abuses in the system. Retirement would be based on actual time worked (no more "airtime" purchases), normal base pay (no more adding bonuses, overtime, unused vacation and sick leave) and a three-year average of final compensation (no more final-year spiking). It would raise the retirement age to reflect actual working years and life expectancy.
Ben grouses that even if legislators did all this, California would still have a "massive bill coming." In the short run, he's right. Courts traditionally have been loath to reverse benefits for current workers. What Brown's plan does is reduce future state costs over the long run.
Let's give credit where credit is due. Legislators should approve Brown's plan because it sets public employee pensions on a sustainable path for the future.
Pia Lopez is an editorial writer at The Bee.