California Cities' Pension Crisis


California cities are being forced to change their generous pension benefits for new and future hires to avoid financial calamities.

Details from the L.A. Times:

About 70 local governments, stretching from Redding to Long Beach, are coming up with new, stingier formulas for calculating pension benefits for future hires.....

Newport Beach approved a contract with firefighters and lifeguards that used planned pay raises to cover pension costs and required lifeguards to pay 3.5% of their pay toward retirement.

Orange County has approved a contract with the deputy sheriff's union that moves the retirement age to 55 from 50 for new hires and requires deputies to contribute part of their pension costs....Similar labor negotiations are underway in Sacramento.

Pension fears are manifest on the state level as well:

Gov. Arnold Schwarzenegger recently reached tentative deals with six state workers' unions to reduce benefits and hike employee retirement fund contributions for new hires. He has also vowed to veto any budget for the current year -- now almost three weeks overdue -- that does not roll back retirement benefits to 1999 levels and require workers to contribute an additional 5% of pay toward retirement.

Because obligations to current workers are constitutionally protected, the negotiations are aimed at creating less expensive retirement arrangements for future employees that would ease the burden on taxpayers and keep pensions on a more solid financial footing over the coming decades.

Unions are fighting to stop any such cuts or restrictions in their pensions, and California is in the same situation as dozens of other states in trying to tamp down future pension obligations--because over the whole country, state pensions funds are looking at $1 trillion to $3 million more in obligations than they are likely to have in resources to pay them. Overpromising and unexpected investment losses by state pension funds both play into the crisis.

The Times article goes on to focus on San Diego specifically, which could see pension outflow constituting half of the city's budget by 2025. Part of the problem comes from government employees still largely enjoying "defined benefit" pensions, in which they are supposed to get a set amount no matter how the value of pension fund investments have gone; these are largely gone from the private sector, though Schwarzenegger tried to shift new California employees to the more common "defined contribution" version, but failed.

In Orange County, a convicted former sheriff is one of over 400 county workers getting six-figure pensions.

The President of CalPERS board of administration is in the Daily News defending the state pension fund from accusations of fiscal instability.

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