California takes different approach than Wisconsin in pension debate

The biggest difference is that no one has suggested an end to collective bargaining, as is being proposed by the governor of Wisconsin. Here in California, pension packages were reduced last year with implementation of a two-tier system that limits coverage for new workers. Unions also agreed to have employees contribute more toward the pension fund. But these marginal reforms, which had been pushed by former Gov. Arnold Schwarzenegger, are not nearly enough to handle the state's ballooning pension liability - that is, the money already owed to employees. So Republicans are asking for more - perhaps leveraging additional cuts as the price for their support of Gov. Brown's budget package. From the Sacramento Bee:

Several GOP lawmakers introduced pension bills last week, including Sen. Mimi Walters, R-Laguna Niguel, who proposed moving toward 401(k)-style accounts for future public-sector workers and preventing employees from buying service time to enhance their pensions. The debate hinges on whether to shift more risk to public employees. Workers assume the risk with defined contribution plans like 401(k) accounts because companies contribute on the front end. What the employee receives depends on market performance. With public pensions, however, the state guarantees a retirement benefit regardless of how the market performs. If investments fail to meet expectations or governments underfund pension accounts, governments eventually have to make up the difference, relying on the same pot of tax dollars that pays for other public services.

Defined benefit plans have been all but abandoned by the private sector. But be careful about making apples-and-oranges comparisons because government workers do not receive Social Security (they don't pay into the system). So they're relying on their pension benefits more than most workers - that's often all they have. Of course, the benefits are generally good, certainly better than for the folks who are stuck with 401(k) plans (if they get any retirement coverage at all). Then there are the scattered stories about public employees gaming the system - the scandal in Bell has been a PR nightmare for the public unions.

In California, 70 percent of likely voters told the Public Policy Institute of California last January they would favor shifting new public employees from defined pension benefits to 401(k)-style plans. "The recession has been a big wake-up call for people about public pensions," said PPIC President Mark Baldassare. "It's something that flew under the radar for many years, without consideration of what impact it has on budgets. But now people are realizing it does have consequences for what states and localities will be able to provide."

This puts Brown and the Democrats in tough spot, considering that organized labor makes up a good portion of their natural constituency.

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Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
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