Some months ago, a baby-boomer friend of mine told me his retirement
plan was to "work until I die." We both chuckled.
No one who has watched the equity in their homes and the value of
their investments virtually vaporize before their eyes in recent
weeks would find this funny. Many of those who were planning to
retire in the next 10 to 15 years are now looking at work as the
only way to see them through their "golden years." Those already
retired are especially vulnerable even though Social Security
payments are going up by almost six percent next year. And
generation X is anxious too. Those now at the midpoint in their
working careers are wondering if there is such thing as a "secure"
investment and they are starting to take seriously warnings that
Social Security — a system that relies on those who are working to
support those who are retired — may run out of money before they
retire.
But as bad as things look now, they could get a lot worse in a
hurry. As threatened and beleaguered California taxpayers trudge
toward retirement, coming up quickly behind them are public
employees who are looking to hitch a piggyback ride.
Our current system for providing for the retirement of public
employees — who are rated as the most highly paid in the nation by
the U.S. Census Bureau — is a contractually guaranteed defined
benefit for each and every one. This means that no matter how poorly
investments by the California Public Employees Retirement System
(CalPERS) perform, taxpayers are obligated to make up the
difference. This is also true at the local level. For example, the
annual taxpayer contribution to the Los Angeles County Employees
Retirement Association (LACERA) has increased from $194 million in
2001 to $752 million last year.
According to Bloomberg News, CALPERS has lost almost $67 billion in
12 months, more than 25 percent of its value, as stock and bond
markets tumbled. The California State Teachers’ Retirement System
(CalSTRS) has also lost 25 percent of its value.
This is not good news for taxpayers, who are already on the hook for
several hundred billion dollars in unfunded liability for public
employee pensions and retiree health care plans. These costs were
already placing a heavy burden on California taxpayers and with the
stock market decline, "it’s going to be even more costly now," says
former Assemblyman Keith Richman, who is president of the California
Foundation for Fiscal Responsibility.
While in the Assembly, Richman was a strong advocate for replacing
the defined benefit system for new employees, with one that provided
a defined contribution by the state to the retirement plan of the
employee’s choice. Facing fanatical opposition from public employee
unions even though current workers would not be impacted, Richman
has recently recommended an approach that would provide a more
actuarially sound foundation, but retain the defined benefit system.
For example, some public safety employees are able to retire at age
50 with 90 percent pay. Richman would require employees to work
several years longer so that they pay a little more toward their own
retirement and collect for several years less.
As things stand now, California private sector workers are
struggling to make ends meet and put a few dollars aside for
retirement, while at the same time they are forced to contribute so
that public employees at the state and local level can enjoy a
certain, secure and comfortable retirement.
The obligation to current workers and retirees is contractually
binding. But taxpayers and public workers, alike, should recognize
that some modification of the retirement system for new hires is in
order now, so that harsher measures do not become mandatory in the
future.