The problem with fake or partial pension reforms: the crisis never goes away
Late last year California passed a bill that implemented what some would like to call sweeping government worker pension reforms.
Late last year California passed a bill that implemented what some would like to call sweeping government worker pension reforms. The bill, passed in December 2012, raised retirement ages for new workers, capped annual payouts and required workers who werent paying half of their retirement costs to pay more.
But the reality is that legislators only tweaked the benefits here and there. Most of the savings to state and local budgets wont be felt for decades. Worst of all, these sweeping reforms kept in place the states unaffordable defined benefit system.
Already, the board of the nations largest public pension system, the California Public Employees’ Retirement System, or CalPERS, is looking for more money to keep the pension funds afloat. This month the board tentatively approved an increase in employer contributions by nearly 50 percent during the next six years. As described by Calpensions:
Board member George Diehr said he was concerned that even with the proposed rate increase, the CalPERS funding level would still have a high probability of dropping below 50 percent in the next 30 years.
”I think falling below 50 percent creates a high risk of political attacks, changes to the defined benefit (pension) system . more likely what happened in San Diego or San Jose,” Diehr said.
“Some academicians have said if you go much below 55 (percent) you never can recoup or regain your status,” said board member Henry Jones.
It’s evident that Californias pension reforms did little to fix the states pension crisis. And it certainly didnt end Californias budget crisis. Thats why Californians were also hit with a massive $7 billion tax increase in November 2012, mostly in the form of higher marginal rates for those making more than $250,000.
Illinois politicians should heed whats happening in California.
Sure, Californias two fixes have temporarily stopped its budget bleed for the moment. But the problem with fake or partial pension reforms is that the crisis never goes away. The fact that CalPERS is already looking for more funding is a telling sign.