The absence of a conservative proposal for public pension reform on the November ballot should not be a reason to stop a necessary overhaul Governor Brown has presented.
The pension system for public employees is on its way to insolvency, since it won’t be able to pay the benefits promised under the current system, which the Legislature’s independent budget analyst described as “among the most generous in the country.” And one of the most expensive, costing almost $2.5 billion this year.
The problem is that several aspects of the current rules are too permissive, increasing the costs, while the pension funds are having lower-than-expected investment returns.
Recently CalPERS, which groups public employees, reported earnings of 1.1% in 2011, when it needs a 7.75% annual rate of return to meet its commitments.
That is why Democrats should not set aside this overhaul now that a dreaded conservative initiative won’t be presented to voters in November.
Brown already presented a 12-point proposal that should be taken into account. Hybrid pensions are its most controversial feature and the one requiring more analysis. However, the package also includes a series of proposals that fix benefit aspects that have been open to abuse.
It is true that the promise of a stable pension is part of an initial compensation package, in which the generosity of retirement makes up for a lower salary than what could be earned in the private sector. That is the theory. In practice, this idea has changed because of the impact of the economic crisis, the political climate and the excesses of some beneficiaries who have made the most of the current system’s weaknesses.
But beyond all this, there is a financial matter that will impact all Californians if nothing changes. If pension funds do not have money to meet their obligations, the money will have to come from other parts of the state budget.