For several years I’ve warned that we can’t afford pension enhancements that have been granted to California’s state and local government workers since 1999. That’s when the Legislature passed SB 400 to increase benefits and lower retirement ages for state workers and permitted local agencies to do the same. Cities, counties, water districts, fire districts – all — have felt pressure to ramp up benefits to keep employees from bolting to other districts.
To bring sanity back to government employee compensation, the California Foundation for Fiscal Responsibility proposes uniform retirement benefits for NEW workers that closely resemble defined benefits earned by federal workers. Not only would uniform benefits stop the bidding wars, we estimate California’s governments will save at least $500 billion in pension costs over the next 30 years. We felt that would be more than enough to keep budgets balanced.
We were wrong.
Even if our economy recovers, changes in benefits for new workers may help budgets at first, but won’t keep pension funds from falling off a financial cliff in the meantime. We have to do more.
Pension funds everywhere have lost over 30% of their value since last June—to unhealthy levels. And we are seeing a spike in new retirements that are draining pension funds at the worst possible time. Today over 5,000 CalPERS retirees receive annual pensions that exceed $100,000. This doesn’t count retirees in 80 other plans, including LA, San Francisco, 1937 Act counties, and the UC system. The majority of retirees in the “$100,000 Club” are public safety workers—and they routinely net more in retirement than in wages. The Club is growing by hundreds each month as these 50-something baby boomers retire. Government retirees are becoming the new idle rich in California while workers in the private sector are watching their wealth disappear.
Active workers and retirees have the most to lose if changes aren’t made soon to ensure their pension funds remain solvent. Two possible solutions: suspend the accrual of retirement service year credits for today’s workers, and suspend the annual COLA increases that are normally added to retirees’ pensions. These changes should be temporary, at least until the market recovers and pension funds return to healthier levels.
Retirees shouldn’t suffer because prices for gas, housing, and retail prices are below last year’s prices. Workers will actually receive higher net paychecks because they won’t contribute anything toward their pensions in years credits are suspended. And if older workers put off retirement for just a few more years, it gives pension funds everywhere the breathing room they need to recover. Everyone wins.