Pension Reform Needs to Be Done Right, Not Just Right Now

Jonathan Karpf
Professor of Anthropology, San Jose State University

Those who loudly shout that California needs pension “reform” now, now, now (“Legislature Must Go All-the-Way with Pension Reform,” Fox&Hounds, 7/3/12) illustrate exactly what is wrong with the public debate on government employees’ retirements: critics scream for quick action and work to create a hysteria, but provide no tangible solutions.

Pension reform needs to be done right, not just done fast. That means taking the time to understand how to shape the state’s system so that it continues to work for our budget, for our workforce, and for the overall economy. The state Legislative Analyst’s Office agreed, saying in a report that “with several thousand public employers and many different pension and retiree health packages offered to public employees, it is very difficult to fashion a workable, fair, sustainable set of legislative provisions … We strongly urge the Legislature to take several months to fashion a pension plan in response to the Governor’s proposals.”

What do real reforms look like? They will tackle issues such as abuses of the system and pension-spiking, which public employee labor unions in more than 240 cities, counties, and local districts have already done at the bargaining table. Firefighters, police officers, garbage truck drivers and more have already voted to increase their own contributions toward their pensions, forego raises, and take on increased workloads. Concessions at the state level, reached within collective bargaining, have saved taxpayers $600 million.

Another real reform would be to take an honest look at the long-term performance of the California Public Employees Retirement System (CalPERS) compared with 401(k), IRA, and other hybrid proposals. Over the past 20 years, CalPERS has shown an 8.4 percent annual positive interest rate — an incredible rate of return in any economy, but especially this one. Meanwhile, the kind of 401(k)s and IRAs that Wall Street would like average Americans to rely on lost 32 percent of their value between 2007 and 2008 — or nearly $3 trillion. Instead of setting of false alarm bells with short-term snapshots of pensions’ performance, lawmakers in California ought to follow the U.S. Congress’s example of allowing private corporations to calculate their pension contributions by using a 25-year average, rather than over just two years.

Another fact conveniently ignored by the sky-is-falling crowd is that Democrats have led the charge, along with public employee unions themselves, to reform pension systems while Republicans have refused to come to the table.

More than two years ago, then-Governor Schwarzenegger joined Democrats in supporting changes that aimed to repeal portions of the 1999 pension agreement often derided by the GOP. But Schwarzenegger was forced to call out Republicans in the state Legislature who blocked the reforms. Senators Dutton and Blakeslee, and Assemblymen Jeffries and Cook, inexplicably put their foot in the way of the very reforms that they now say are urgent.

Like most issues in Sacramento, pensions will not be properly addressed through hysteria and empty rhetoric. Our government employees’ retirements are a complex and significant economic driver that require careful consideration and thoughtful solutions, not Chicken Little-style calls to “go all the way” — whatever that means.

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