Opinion: California’s pension tsunami is far from over

“With Wall Street CEOs warning of financial carnage ahead, governors overseeing some of the nation’s largest pension systems are bracing for a hit to state investment funds that have long supported benefit plans and cash-strapped budgets,” reported Politico’s Sam Sutton on Dec. 28. “The longer the decline, the harder it gets for governments to pay retirement benefits promised to millions of teachers, cops, firefighters and other workers in exchange for careers in public service.”

Indeed, last year, the California Public Employees’ Retirement System took nearly $30 billion in losses.

Though a lot has changed since this last report, in 2019, the Stanford Institute for Economic Policy Research’s Pension Tracker indicated, “California’s total unfunded pension liability (aka pension debt) remains at more than $1.0 trillion, measured on a market basis; this translates into $77,000 per household.”

Pension debts have remained a challenge at all levels of government, from school boards to cities to counties and up to the state level. This is despite significant investments of taxpayer money toward pension contributions.

“Crowd-out” has long been observed across the state, as greater and greater portions of government budgets have gone toward pension at the expense of other priorities. Practically, that’s meant fewer investments in police, in libraries, in parks, in infrastructure.

It’s even come at the expense of resources that could be used to offer public sector workers more attractive wages.

The problem of crowd-out endures, and gets worse, when investment returns fail to deliver. That’s because pensions are mostly funded by investments, with government employers (meaning taxpayers) and government employees contributing. If investments lag, who picks up the slack? Taxpayers.

It is true that, a decade ago, California implemented much-needed pension reform, which created less-generous pension benefits for new hires and curtailed the ability of public employees to “spike” their pension benefit calculations right before retirement.

But the anticipated benefits to taxpayers in the form of reduced pension obligations are still many years away. And even those benefits remain subject to what happens with the stock market.

This is the fundamental problem with defined-benefit retirement benefits, which guarantee public employees benefits that must be fulfilled.

The more sustainable and reasonable retirement plans are defined-contribution plans like 401(k)s.

But, of course, public employee unions have fought hard for the more lucrative (for them) and more costly (for you) retirement schemes.

Amid ongoing economic uncertainty and the constant threat of recession or stagnation, taxpayers will be on the hook for any real or anticipated shortfalls.

That means taxpayers must be vigilant, as public sector unions and their allies are sure to resume new pushes for tax increases or “reforms” to protections like Proposition 13.

Southern California News Group