About a year ago, Gov. Jerry Brown told an audience in San Francisco, “We’re not finished with pension reform. We’ve still got to do much more there.”
But public employee unions in California would like to undo even the small amount that has been done. The governor’s 2012 pension reform law has been challenged with several lawsuits, including one by the union that represents Calfire firefighters. This week, Brown’s office was in court to file a brief arguing that the pension changes — which included reduced benefits for new workers and restrictions on pension “spiking” — were necessary “to maintain the public’s trust in the government’s prudent use of limited taxpayer funds.”
The funds are more limited than ever, compared to the rising unfunded liability. CalPERS and the California State Teachers’ Retirement System have only about two-thirds of the assets they would need to pay the benefits they owe to state workers.
The two pension systems are now asking schools and local governments to contribute more from their budgets to cover pension costs, and that means there will be less money available to pay for education and basic services. California should look to Michigan, which dealt with a budget and teachers’ pension crisis last summer. With the help of the Reason Foundation’s Pension Integrity Project, lawmakers devised a pension reform that protected current workers, offered a choice of retirement benefits to new workers, and reduced taxpayer risk to the point where Moody’s investment rating service called the reform a “credit positive.”
Under the reform plan, new hires are auto-enrolled in a defined contribution retirement plan in which the state contributes up to 7 percent of a worker’s salary, better than the 3 percent offered by the teachers’ earlier plan. The employee also has the option to select a defined benefit pension plan, which uses conservative financial assumptions, splits all costs 50-50 between the…