There is some rhetoric flying around about what the Governor was and was not supporting by way of public employee pension reform last year. The Governor was supporting a change in pensions that would have shifted public sector employees from what is called a “defined benefit” program to what is called a “defined contribution” program. This change, which would have applied to only new hires (all existing public employees would be ‘grandfathered’ under the current rules), would have simply moved the methodology behind public sector retirement benifits to those used in the private sector.
In a defined benefits system, if an employee works for a set number of years, there is a specific formula of exactly how much the employer (in this case, the government) would pay a retiree, based on factors like their last salary, etc.
In a defined contributions system, the employer makes a specified contribution each pay period, or month, or year, into a retirement account for that employee (often times employees can augment this amount). Then this fund (like a 401k) grows over time resulting in an eventual retirement “nest egg” for an employee to draw upon their retirement.
California is looking at huge unfunded liabillities because of the current system in place. Shifting new employees to a defined benefits plan would do little about that on the short term – but looking decades down the road, it would make a huge difference.
Governor Schwarzenegger should be commended for his willingness to look at this situation and take political flack today for changes that won’t have a significant impact on California finances until long after he retires from his Governor duties in 2010.
I should add as a footnote that the measure outlined above was never taken to the voters because public employee unions latched onto a ‘red herring’ argument that was nevertheless politically potent. The unions argued that the measure, as drafted, would have negatively impacted survivor’s benefits for the families of fallen public safety professionals. Whether true or not, the controversy flared at just the right moment that the proverbial “plug” was pulled for this proposed ballot measure. Hopefully it will come back as the problem is getting worse, not better.
The idea here is sound, and like I said, the Governor’s support for the principles behind these changes in public sector pensions should be applauded.
So, as you can see, the Governor NEVER advocated “taking away” anyone’s benefits – he supported common sense adjustments to retirement benefits for new government employees.