Recent stock market volatility and shaky economic conditions should remind policymakers that there are many scenarios where California’s public pension debt could grow significantly in the years ahead. California’s state-run pension plans already had $285 billion in unfunded liabilities at the end of 2023, according to Reason Foundation research, so it’s incredibly worrying to see lawmakers considering undoing pension reforms that save tens of billions of dollars so they can dole out unaffordable and unnecessary pension increases to government workers.
The 2012 Public Employees’ Pension Reform Act (PEPRA), signed by Gov. Jerry Brown, improved the long-term stability of the state’s public pension plans, helping slow runaway costs that had become an insurmountable burden on state and local budgets.
However, before the full savings from these reforms have been realized, some lawmakers, partnering with public labor unions, are trying to undo them. These reversals would thrust California back into the same pension funding quagmire it was in over a decade ago.
At the time of the 2012 reform, governments at all levels were reeling from exploding public pension costs, caused mainly by irresponsible and unfunded benefit increases granted around the turn of the century. State policymakers needed to slow the growth of pension costs, which they did by modifying the benefits promised to future workers. Specifically, the law limited the size of retirement benefits that could be promised to prospective hires, increased the age at which new hires could retire, and set a minimum for the amount employees must contribute.
The impressive cost savings from the reforms are undeniable. The California Public Employees’ Retirement System (CalPERS)—the country’s largest public pension plan—estimates that PEPRA saved its employers, i.e., taxpayers, up to $5 billion over the last decade. Taxpayers are supposed to see even more savings over the next 10 years. CalPERS estimates PEPRA will reduce taxpayers’ costs by $20 billion to $25 billion. However, the reforms must remain in place to realize these savings.
Unfortunately, two current proposals in the state legislature threaten to derail the pension reforms and increase taxpayer costs. Assembly Bill 569 would allow local governments to circumvent the benefit limits set by PEPRA, opening the gates to the same costly and unfunded pension increases that created the state’s massive public pension debt in the first place.
Assembly Bill 1383 would cause even more harm to taxpayers and PEPRA by undoing limits on pension benefit increases, retirement age adjustments, and contribution requirements for all public safety members enrolled in CalPERS. The bill aims to give police and firefighters costly pre-2012 pension benefits, which have already proved financially untenable for taxpayers and governments.
The proposals would worsen California’s pension funding problems. While significant funding progress has been made since the 2012 reforms—state pensions have improved from 71 percent funded to nearly 80 percent funded— the state’s unfunded pension liabilities jumped above $244 billion in 2009 and haven’t come back down.
Supporters of these new bills to increase pension benefits argue they’re needed to help recruit and retain public workers. However, there is no evidence that handing out costly benefits increases will do that. Surveys of incoming and outgoing public workers consistently demonstrate that pensions are not among the top considerations for new hires or those leaving government jobs. Public workers say they are far more interested in higher salaries, better workplace conditions and work-life balance, not more pension benefits.
Opening the door for pension cost increases and more debt, while the state is $285 billion short of having the money needed to pay for the retirement promises it has already made to public workers, would be highly irresponsible to government employees and the taxpayers who will ultimately foot the bill.
Maintaining the PEPRA reforms is part of the state’s best hope for fully funding public pension benefits and eliminating debt. Unwisely unwinding PEPRA’s successful pension reforms before the full funding goal is realized would increase unfunded pension liabilities and cost state taxpayers tens of billions in the years ahead.
Zachary Christensen is a managing director of Reason Foundation’s Pension Integrity Project.