California and the Thorny Business of Cutting Current Public Workers’ Pensions

Source: Charles Chieppo, Governing, Better, Faster, Cheaper blog, October 2, 2013

…It’s true that some jurisdictions offer unsustainable pension benefits, and nearly every public retirement fund’s investment performance was hit hard by the Great Recession, but it isn’t fair to solve those problems simply by slashing current public employees’ pensions.

There are a number of things that states and municipal governments can do to help get pension costs under control. Moving to a defined-contribution and/or cash-balance plan shifts some of the risk and makes pension costs much more predictable. So do adjustable pension plans, under which benefits are guaranteed but the size of the benefit is linked to pension-fund investment performance during the previous year.

Limiting cost-of-living adjustments for retirees to a reasonable level also can help get pension costs under control. And while dialing back overly optimistic assumptions about pension-fund investment returns doesn’t cut costs, it does strip away the facade that the funds are in better shape than they really are….