How You'll Know When We Have Real Pension Reform

The state legislature is supposedly contemplating "pension reform" this week. Whether lawmakers pass a bill or not, know this: at best, whatever changes they make will be modest, and are unlikely to save money or deal with California's real problems.

The starting point is Gov. Jerry Brown's well-intentioned package, which seeks to curb the worse pension abuses and to impose some order on local governments, which is where the real problem with excessive compensation, including pensions, is in this state. Democrats will water that down, if they do anything at all.

But even these changes won't do much to roll back excessive compensation; pensions are a major form of excessive compensation in government, and a particularly dangerous form because they are deferred compensation. Many governments don't put enough money today to aside to cover tomorrow's costs, which is why unfunded liabilities run into the tens of billions, and perhaps hundreds of billions.

So how will you know when we have true pension reform? When the two problems at the heart of the pension problem are addressed. Unfortunately, those two problems are little understood. They are:

1. Law enforcement. The worst pension abuses are among law enforcement, both at the state level (with prison guards) and at the local level, with police and fire. Cops and firefighters are so popular that touching their compensation is very difficult; indeed, unions for law enforcement have been successful, both in collective bargaining and via in the law, in baking in unsustainable salary and benefits, including pensions.

Law enforcement officers are able to retire very young, exacerbating the problem. So fixing pensions means taking on this powerful political force. And if you read the fine print on Brown's plan (and virtually every other pension reform), you'll see that cops and firefighters are exempt from many of the changes.

That can't work. So how will you know when pension reform has finally come? When you walk into a police station, and all the cops at the desks are 65.

2. Pension envy. The problem of pensions is not merely compensation. It's one of fairness. Private sector workers no longer have pensions in most cases, and their retirements are insecure. So why, they ask, should we foot the bill for pensions for public workers?

Answering this question is as important as cutting back government employee pensions (and other unsustainable compensation).

And that answer is to provide all citizens with the same level of pension protection that public workers get.

That's right -- public pensions for all. And yes, that could be expensive -- if we give everyone the same pensions that public employees currently enjoy.

But we can't. And we shouldn't.

Instead, expanding pensions to private workers should be part of a pension reform that reduces the amount of and risk of public employee pensions down to a sustainable level -- so sustainable that everyone could be let in.

This means assuming much lower rate of returns than pension funds in California currently do (north of 7 percent). And it means demanding contributions from employees and employers that cover the real costs of pensions.

So that's pension reform -- when you and the old cop you see at the station can commiserate about your pension, because you have the same one.

Lead Prop Zero blogger Joe Mathews is California editor at Zocalo Public Square, a fellow at Arizona State University’s Center for Social Cohesion, and co-author of California Crackup: How Reform Broke the Golden State and How We Can Fix It (University of California, 2010).

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