Why You Should Care about Pension Reform

The current pension reform debate – with proposals from the governor and now from a team of Republicans via ballot initiative – is drawing considerable media attention.

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It’s hard to understand why.

The debate has almost nothing to do with the broader public.

The pension changes being talked about won’t change all that much or save much money for other public programs. And the plans being offered don’t respond to the real problem in matters of retirement savings.

The problem? That the number of Americans participating in retirement plans is on the decline.

You read that right. I just finished reading a chilling new report from Michael Calabrese of the New America Foundation (full disclosure: I’m a New America fellow). His conclusion:  “the majority of American adults do not participate in any retirement saving plan—whether pension or 401(k) or Individual Retirement Account (IRA). Participation in employer-sponsored plans peaked in the late 1970s and appears to be at its lowest level in more than 30 years.”

In that context, any debate about public pensions that doesn’t talk about the lack of retirement savings is missing the point. The question ought to be how do we increase retirement security for the broad majority of Americans – by getting them to save and participate in retirement plans. Because that’s the real unfunded obligation – those who don’t have retirement savings will have to rely more on Social Security or other forms of public assistance.

So if you want meaningful pension reform (meaningful enough for the public to care), a proposal must focus on ways to reshape public employee pensions not merely to save money but to provide some sort of basis for greater retirement savings by people who don’t work for the government.

And the California reforms on the table don’t meet either test. Both Brown’s plan and the initiatives filed this week would set up two-tiered pension systems – different for current and new employees. The savings in such systems are likely illusory because two-tiered pension systems are unstable (they end up becoming one tier again in good times) and because savings from new employees are likely to be minimal (especially in an era when there aren’t many new employees).

And yes, both Brown’s plan and the initiatives demand more in contributions from current employees. That’s good – but it’s not enough. If current employees are going to be asked to take hits – and they should be asked, and pressured to do so – they should be asked to move into defined benefit programs that are so safe and sustainable that other Californians and their employers outside the public sector could participate in them.

That kind of program would require not only more in contributions from employees (and from employers) but also much more conservative assumptions about investment returns.

That would mean less in pensions for public workers – but much, much more in retirement, and in retirement security for the rest of us.

For now, however, the pension reform debate remains one of those Sacramento conversations that has almost nothing to do with the lives of Californians.

(Joe Mathews is a Journalist and Irvine senior fellow at the New America Foundation, Fellow at the Center for Social Cohesion at Arizona State University and co-author of California Crackup: How Reform Broke the Golden State and How We Can Fix It (UC Press, 2010). This article was first published in Fox & Hounds.)


  1. I feel the unions must also be addressed in any financial reforms for California.
    Jerry Brown opened Pandora’s box during his first attempt as govenor by allowing the unions to represent the states public service employees, teachers, etc. The union influence, (Campaign Financing) is what got Jerry Brown elected again, as well as the majority of the state politicians, insuring that nothing will change that comes out of Sacramento. To solve the financial crisis, this HAS to be addressed.
    Not only are the retirement packages out of kilter with reality, but the health benefits as well. The benefit packages that have been negotiated between the union and the state fit right in with the socialist movement of government care from cradle to grave. The taxpayers are getting fleeced by paying nearly all of the cost of the retirement packages for the states union employees as well as the cost of almost all of their healthcare benefits, in addition to their “most generous” salaries.
    California will remain in financial demise until something is done to rectify the union stranglehold on Sacramento, and serious reforms are undertaken to “undo” the plundering of the California taxpayer.

    • Have you ever read the candidates statements on the election ballots? How many candidates list the qualifications as “Retired Educator” .
      Not only are they living the “good life” with free health care, annual cost of living increases in their retirement packages, but are now lining up at the “public buffet for a a 2nd run on the taxpayers largess as a Politician, or working in other public service positions, DMV/CALTRANS, etc. Let’s restrict the state retirement system to a system that combines all state related employment years into one final retirement rather than pay someone a retirement and healthcare package while they are still an employee of the state, just in a different position, whether it be DMV, Politician, or Cal Trans.
      Your thoughts?

  2. If workers in the private sector put 8% into a retirement fund for 30 years they too would have a retirement program. But few people in the private sector that earn middle wages put anything into a retirement program. Calpers should open a retirement option to private sector employees where they contribute a certain percentage of their salary into a retirement program, having several different tiers, like the public sector. The median yearly retirement payout for State employees under the SEIU is $24,000 per year. These are not extravagant retirements, neither are the salaries of unionized employees. It is the exempt managers that make the larger retirement benefits, not the union employees.

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