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Radical Action Plan for Pension Crisis

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The Daily News has found enormous citizen dissatisfaction over employee pay and pensions in city government, and offers some difficult but likely necessary solutions.

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The paper calls for bold action from Villaraigosa to change a pension and compensation system that could be the fiscal death of Los Angeles:

Villaraigosa should invest as much of his political capital as it takes to put a measure on the March ballot to replace the current pension benefits with a system that includes higher retirement age, fewer benefits and a 401(k) structure....

First and foremost, L.A. needs to phase out pensions. Publicly funded, defined benefit plans are inherently unfair because all the risk is carried by the employer - or in this case, the taxpayer. Workers are guaranteed a retirement income, no matter whether taxpayers can afford it.

And when the stock market falls and the value of the pension fund plummets, taxpayers are forced to make up the difference, not the employees. Nongovernmental employers got out of the pension business a long time ago, and only about 5 percent of private sector workers have pensions.

It's time for a new model....All new city hires - whether civilian workers or sworn police officers or firefighters - should be enrolled in defined contribution plans, known to many as either 401(k) or 403(b) plans. Both the city and the employee would pay into an individual retirement account that is sponsored by the city.

In addition, new city employees should be enrolled in Social Security. Currently, neither the city nor its workers pay Social Security taxes, and so retired employees aren't eligible for Social Security benefits. The combination of Social Security and a 401(k)-like account should provide workers a reliable retirement income, without the taxpayer risk.

Without these sorts of changes--and increasing employee contributions to their own health insurance, raising the retirement age, and emulating San Francisco by requiring voter approval of future pension raises--the paper predicts that a third of the city's current budget will be going to employee retirement benefits by 2015.

L.A.'s most notorious pensioner: "grim sleeper" murder suspect Lonnie Franklin Jr. The Daily News from earlier this month on the City Council's study plans to come up with a pension solution.

Previous City of Angles blogging on the statewide looming pension crisis.

Image taken by Flickr user joits. Used under user Creative Commons license.

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