Pension Reform Options

Not present on the ballot this year in California is an initiative to reformulate pension benefits for state and local government employees. The subject of dozens of posts, public employee pensions are financially unsustainable and grossly inequitable. The reasons for those assertions have been fully explored in previous posts, so the purpose of this post is not to reiterate those reasons, but to enumerate some of the key reforms that would, if they were all enacted, bring pension benefits for public sector employees down to a level that would be financially sustainable while still preserving the defined benefit option. In some cases, these reforms would have to be implemented not via an initiative amendment, but via municipal bankruptcy court – but if they were included in an initiative, it would provide a roadmap for bankruptcy courts to follow. Here goes:

(1) Lower annual pension accrual to 1999 levels for new hires: The public sector pension formula for all new hires would be based, as before, on accruing a percentage of final salary for each year worked. For public safety employees this percent would be reduced from 3.0% per year to 2.0% per year. For all other employees, this percent would be reduced from 2.0% per year to 1.25% per year.

(2) Lower annual pension accrual to 1999 levels going forward for existing hires: Current employees would, for all years remaining in their public sector career, accrue their retirement benefit at the new reduced percentage rate. Current employees would retain the [...] Read More