Little Hoover Commission calls for California pension rollbacks

Pension rollbacks for current employees. That's new - and important. The independent state agency says in a report that state and local governments cannot control mounting pension obligations without freezing benefits for current workers and then lowering them for future years worked. Payments to already-retired workers would not be affected. The commission also called on ending the defined benefit model that requires state and local governments to pick up any pension shortfall, and which has been a serious burden on budgeting. Instead, a hybrid system is proposed that would include a small defined benefit pension program, Social Security (which public workers do not currently receive), and an employer-matched 401(k) component. These ideas make sense for all kinds of reasons, but they are certain to be challenged if lawmakers try to enact them - and the courts have ruled that government has a contractual obligation to follow through on pension agreements. The one potential exception for municipal governments is a Chapter 9 bankruptcy filing, which would be a balky, politically challenging process. In other words, don't hold your breath. Candidly, I suspect that nothing short of a major financial breakdown would be needed to implement real reforms. But at least commission laid out the situation - that's something. From the report:

California's pension plans are dangerously underfunded, the result of overly generous benefit promises, wishful thinking and an unwillingness to plan prudently. Unless aggressive reforms are implemented now, the problem will get far worse, forcing counties and cities to severely reduce services and layoff employees to meet pension obligations.

Among other recommendations:

--A cap in the $80,000-$90,000 range of the maximum salary that could be
used to calculate pension benefits.
--Eligibility ages for pension benefits that do not encourage early retirement.
--A requirement that employees and employers share the normal costs of
funding their pension plans.
--Clear definitions of final compensation to prevent "spiking."
--A prohibition against contribution "holidays" when employers do not pay into
the funds.
--A ban on retroactive pension increases.
--Steps to improve accountability and transparency.