Former Los Angeles Mayor Richard Riordan is trying to do a good thing by filing a ballot initiative to control his city's pension costs. But his strategy is all wrong. It's a fight he simply can't win.
Why? Because the cause of "pension reform" is doomed to fail. For one thing, a series of serious obstacles stand in the way of anyone who wants to cut back pensions. For another, focusing on pensions misstates the real problem facing cities: too much compensation, especially for law enforcement.
To his credit, Riordan is including police and fire in his proposal to establish 401k accounts for new employees (Other pension reform vehicles being pursued LA politicians exclude law enforcement even though law enforcement is where the greatest abuses are).
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But that doesn't matter, because pension reform is a fight you can't win. Here are five reasons why:
5. Labor will never surrender. Powerful public employee unions aren't about to go along with pension rollbacks in the nation's second largest city. So it doesn't matter how many victories Riordan wins along the way -- the unions will never stop fighting him, on the ballot, in the city council, and in court.
4. Legal problems. There are any number of legal precedents that say you can't cut pensions. Once promised, the promise must be met. Which is why it's foolish to focus on pensions as a way to control over-compensation of some public employees. Pensions are the hardest part of employee compensation packages to take away. Riordan would be better off going after retiree health care or wages.
3. His own plan may not save money. Studies of 401k-style plans show they don't save much money. And by putting new employees into 401k's, the city won't have as many revenues coming into the pension system to cover current obligations. That could require the city to make up more of the costs of today's retirees and employees. Riordan's savings plan may not save money at all.
2. Even if somehow approved, Riordan's plan won't last. The former mayor is essentially proposing a two-tiered pension plan -- one plan for current retirees and some current workers, and a different plan for everyone else. The history of two-tiered plans is that they don't stay two-tiered. They're politically unstable -- because it doesn't work for people in the same workplace to have totally different retirement plans. When times are good, unions successfully negotiate to have everyone put back in the same pension plan.
1. Even if Riordan wins, his victory can be undone simply by salary increases. This is the biggest problem with pension reform. Any savings you may make by changing pensions (if you can pull off the miracle of rolling back pensions) can be easily lost simply by giving a wage increase to the same workers. This is the problem with the much-touted pension ballot measure passed in San Diego earlier this year. While pension changes may have saved money, it was tied to pay increases that, by increasing pension obligations, wipe out all the savings.
Pension reform is, to put it simply, a game that can't be won. Mayor Riordan should avoid playing it.