PD Editorial: More relief needed from pension costs

Soaring retirement costs are still shouldering out road repairs, park maintenance, education and other public services throughout the state.

CalSTRS, the state teachers retirement fund, recently recalculated its unfunded liability to reflect new rules requiring a more accurate accounting of pension debt. The result: Its unfunded liability jumped from $71 billion to $166.9 billion.

Spread across the member districts, the authoritative Calpensions.com website reported, the liability amounts to $49 million for a typical small-enrollment school district and $728 million for large districts.

In April, CalPERS, the retirement fund for more than a million current and former state and local workers, listed its unfunded liability at about $100 billion. That, too, will climb with new accounting rules.

CalPERS contribution rates have increased steeply, and fund managers are looking at additional increases, perhaps 25 percent or more, in the next six years.

In its budget forecast, Rohnert Park, a CalPERS city, includes a worst-case scenario showing 60 cents in retirement costs for every dollar of payroll in its Public Safety Department. Other cities are looking at similar numbers.

California and many local governments, Rohnert Park among them, have enacted pension reforms that will result in significant savings. But most of those savings are years away because most of the reforms — reducing benefits, increasing employee contributions and raising retirement ages — affect only new employees.

CalPERS and public employee groups contend that California's constitution prohibits any reduction in retirement benefits for current employees. Moreover, they argue, that prohibition covers not only retirement benefits that they've earned to date but any benefits they would earn in the future.

The courts generally have sided with employee groups on this issue.

All sides are anxiously waiting for a Santa Clara County judge to rule on a San Jose ballot measure that protects current pension rights for city employees but requires them to choose between a smaller benefit or paying more into the pension fund going forward.

As a charter city, Mayor Chuck Reed, who engineered the ballot measure, argues that San Jose has greater discretion to change pension benefits.

As an article on the front page of the Forum section explains, Reed is now seeking to change the state constitution to allow cities, counties, school districts and the state to reduce retirement benefits for public employees.

Benefits already earned could not be reduced — nor should they be.

But if his constitutional amendment qualifies for the ballot, passes and withstands legal challenges, benefits could be frozen, with formulas changed so they accrue at a lower rate going forward.

In the private sector, many companies already have frozen benefits and reduced future accruals to address unfunded liabilities and investment losses.

It's too soon to take a position on the specifics of Reed's initiative. But the concept is a good one, and it builds on a recommendation of the state Little Hoover Commission, a government watchdog panel.

Retirement costs are still a huge drag on public services and a potential threat to the solvency of public agencies.

Some people want to do away with pension benefits entirely, replacing them with 401(k)-type plans. We think that's premature. But such drastic changes will become more likely, and perhaps unavoidable, without more savings on retirement costs for public employees throughout California.