Cal Pension Death Spiral

The state pension follies
Broken system, not side issues, should be focus of reform push
By UNION-TRIBUNE
Tuesday, April 20, 2010 at 12:02 a.m.
For years, congressional earmarks have been the target of vast public and media ire. Earmarks are obnoxious in many ways. They are lightly scrutinized, if at all; they are commonly used as political payoffs; and they promote a culture of corruption, as San Diegans witnessed with Randy "Duke" Cunningham, the local congressman turned federal prison inmate.
But the problem with devoting so much energy to earmarks is that they are a relatively minor part of a vastly larger problem: enormous federal deficits and the burgeoning national debt. Consider what happened in February: The U.S. government spent $328 billion while only receiving $107 billion in revenue. For anyone worried about government spending, preventing similar fiscal atrocities should be the priority, not fighting earmarks.
Now we're seeing a similar dynamic in California with another huge long-term fiscal problem: the cost of public employee pensions. In Sacramento, reformers are pushing for eliminating the use of "placement agents" - well-connected insiders, normally - to acquire hundreds of millions of dollars in investments from the California Public Employees' Retirement System and the California State Teachers' Retirement System. There are also efforts to make it more difficult for public employees to spike their pensions through dubious late-career job transfers and to have pensions be based on an average of a worker's final five years of pay, not the final year alone.
These ideas, while worthy, don't address the pension system's fundamental problem: Its basic structure is unaffordable. California needs a complete break with current policies that allow government workers to retire in their 50s with pay equal to 60 percent to 90 percent of their final salaries. We need a new system with much less generous pensions and with disincentives to early retirements.
Last summer, CalPERS' own actuary said the current system is unsustainable. But CalPERS' official stance amounts to denial. It rails against those who doubt its optimistic return forecasts and who note the pension giant's key role in promoting a ruinous 1999 state law allowing local governments to give away 50 percent retroactive pension increases.
In key ways, this defensiveness is indistinguishable from dishonesty. As documented by David Crane, an economics adviser to Gov. Arnold Schwarzenegger, CalPERS uses accounting gambits to minimize its gigantic unfunded liabilities that it would never tolerate in the companies it invests in.
Such duplicity props up a broken system. This deserves much more attention than the relatively minor issues now taking up the time of many pension reformers in Sacramento. The sooner this sinks in, the better.
http://www.signonsandiego.com/news/2010/apr/20/state-pension-follies/