PD Editorial: A holding pattern on pension reform

<p>One of the stubborn myths of the public employee pension debate is that a phony crisis has been manufactured to facilitate attacks on government employees.</p><p>Curiously, the leaders — if you buy the conspiracy theory — include a pair of labor-friendly blue state governors.</p><p>In California, Gov. Jerry Brown unveiled a 12-point plan last fall that would trim the rapidly escalating cost of retirement costs in state and local budgets by increasing contributions for current employees and switching future employees to a smaller pension augmented by a 401(k)-style savings plan and Social Security. During his State of the State speech last month, Brown urged lawmakers to act quickly on his pension proposal.</p><p>“Examine it. Improve it,” he said. “But please take up the issue and do something real. I am committed to pension reform because I believe there is a real problem. Three times as many people are retiring as are entering the workforce. The arithmetic doesn't add up .<TH>.<TH>.</p><p>“Benefits, contributions and the age of retirement all have to balance. I don't believe they do today,” he said, adding later, “So we have to take action. And we should do it this year.”</p><p>In New York, Gov. Andrew Cuomo made pension reform a cornerstone of his state budget plan. As in Brown's plan, Cuomo's proposed changes target future employees, offering them a choice of reduced benefits or a 401(k)-style plan, while retaining existing benefits for current employees.</p><p>“We need pension reform,” Cuomo said. “We need it desperately.”</p><p>Brown and Cuomo — and myriad other officials, both Democrats and Republicans — understand that too many pension systems are headed for disaster. A combination of retroactive benefit increases, inadequate contributions and an historic stock market crash in 2008 have driven unfunded liabilities and taxpayer costs to unsustainable levels.</p><p>In the case of the California Public Employees Retirement System, the fund will be short billions of dollars even if it attains its promised annual return of 7.75 percent for the next 20 years — and, as last year's 1.1 percent return reflects, that's increasingly unlikely.</p><p>Unfortunately, there's little sign of reform activity in Sacramento. A joint Senate/Assembly committee has held three “informational hearings” on pensions but has yet to draft any legislation. At the latest hearing, legislators called on Brown to produce a bill that reflects his plan.</p><p>Democratic legislators aren't eager to upset their allies in organized labor, who oppose pension reform. They seem content to wait. But Brown has correctly recognized the political links between pension reform and the tax initiative that he's trying to place on the November ballot. There also are two pension reform initiatives in circulation, both of which would reduce benefits more drastically than anything envisioned by the governor.</p><p>Brown aides say they are working on a bill to implement his proposal. Whether he can find a legislative sponsor remains to be seen. But if lawmakers succumb to the myth that there isn't a big problem, they could be faced with losing battles on both pensions and their tax plan for public schools.</p>