By DAVE LOW
The attack on pension changes passed by a bipartisan vote of the Legislature and signed by Governor Brown (Dan Borenstein, Feb. 2) was exactly like each of the few Lotto tickets I’ve ever purchased: Wrong across the board.
The reforms, enacted in 2012, were designed to bolster the long-term health of California’s public pension systems, and they are doing exactly that. Their effects will be measured over the lifetimes of thousands of schoolteachers, firefighters, police officers, bus drivers, trash collectors, librarians and others whose labor provides the public services upon which Californians rely.
Yet, after just four years, some critics believe a negative judgment can be rendered.
It is a judgment that ignores the fact that retirement ages for all workers hired after Jan. 1, 2013, were raised by two years or more, meaning that 200,000-plus new public employees will spend two more years contributing to the pension funds and two fewer years collecting benefits.
Experts projected that the 2012 pension reforms would reduce collective retirement benefits to public workers by about $85 billion over time, and a recent CalPERS analysis showed that these savings are accumulated even faster than originally projected.
For rank-and-file workers who spend their careers driving school buses, serving lunches to senior citizens or processing unemployment claims, that amounts to real money and the prospect of real hardship in retirement. For example, a worker earning $40,000 a year over a 30-year career would have previously received a monthly pension of $2,000 a month previously, but now will receive $1,300 a month.
Critics make a fundamental error made by novice economists everywhere – the assumption that correlation is the same as causation. Yes, it’s true that the funded ratio of the pension plans has declined since the reforms were enacted, but the cause of that was not a failure of the reforms.
A variety of factors have contributed to the cost of pensions, including people living longer, salary increases in a recovering economy and lower earnings in the stock market. These factors have caused increases in contribution rates, but without the PEPRA reforms rates would have been higher.
Since Brown’s reforms upped the amount workers must contribute from their paychecks to fund their retirement, the state has realized cost savings of up to 5.1 percent of payroll for public safety employees, and 1.2 percent of payroll for other workers hired after January 1, 2013.
And yes, public workers contribute every month to their retirement plans. It ranges from 7 percent to 12 percent of pay for most workers, depending on their jobs.
The commentary proclaims that Brown’s reforms “won’t produce significant savings for decades.” The fact is that these reforms are producing savings now and will continue to do so for decades.
It is a challenge to comprehend the long and everlasting cycle of pension funds. New workers come into the system, older workers retire, retirees collect benefits and then, as do we all, succumb to mortality. The cycle renews daily and, in the case of public worker pensions, will be sustained for as long as our democratic system is sustained.
But to properly assess public pension funds, comprehension of that long horizon is essential.
Investment markets will surge and soar, sag and plummet. The funding ratio will rise and fall. But a longer-term view shows that averaged over the last 30 years, investment returns have met projections and expert studies predict they will continue to do so over the long horizon.
The 2012 reforms were enacted to enhance sustainability of the funds over time. They have begun to work and will continue to work for decades to come.
Dave Low is chairman of Californians for Retirement Security, an organization of more than 1.6 million teachers, firefighters, nurses and other public employees and retirees. He wrote this for the Bay Area News Group.