Contributors
Keith Richman - Contributor

After nearly 20 years in medical practice and building a $80 million health care provider group, California Assemblyman Keith Richman began his public service by winning the 38th Assembly District in 2000, representing the north San Fernando Valley, Santa Clarita, Simi Valley and portions of Glendale and La Cresenta. Assemblyman Richman serves on the Assembly Health and Insurance Committees and his key legislative measures include a statewide energy policy framework, HMO reform, workers' compensation system reforms and expanding access to medical care for all Californians. Distinguished Sacramento Bee Columnist Dan Walters said, “Keith Richman is the sort of person who was supposed to be elected to the Legislature after term limits loosened the grip of professional politicians -- someone who saw it as civic service, not a lifetime career.” [Richman index]

Solution To Public Pension Woes?
Look To The Private Sector…
[Keith Richman] 2/10/05

Public-employee pension costs are devastating government budgets throughout California, prompting calls for greater fiscal responsibility and government accountability. The best solution is the same type of 401(k) plan offered to most private-sector and some public-sector employees.

Massive pension deficits, generous benefit increases and out-of-control pension costs across the state clearly illustrate the need for a new public- employee retirement program. The Bay Area has several examples of government agencies cutting services to meet pension obligations.

Contra Costa County's traditional defined-benefit plan suffers from a deficit of more than $1 billion, prompting a grand jury to predict that cuts in funding for "infrastructure repair, law enforcement, social welfare and health" will be needed to pay off the debt. Contra Costa's pension costs have risen from $29 million (or 5 percent of the county budget) in 1994 to $103 million (or more than 12 percent of the budget) this year. Reliable estimates show pension costs alone exceeding 20 percent of the county's general fund before the debt is fully repaid.

A grand jury in Santa Clara County found pension costs there have gone up almost 50 percent during the past three years, from $66 million to $95 million. Oakland is proposing a 3 percent across-the-board cut in services, including police and firefighters, to cope with its $15 million jump in pension costs. The City of Richmond has sent pink slips to nearly half of its firefighters in recent years as it struggles with its own pension debts.

At the statewide level, California's two largest pension funds, CalPERS and CalSTRS, are each underfunded by more than $20 billion. Because of their very design, any defined-benefit pension with a deficit the stock market can't cover puts taxpayers on the hook. The state's general fund contributions to CalPERS alone are expected to jump from $160 million in 2000 to $2.6 billion this year and to $3.5 billion in 2009.

We would have none of these troubling developments if all government agencies offered only the same 401(k) program most often used by the private sector. For politicians, establishing a match rate for employee contributions is an easy-to-understand decision with predictable costs -- just the type of fiscal accountability taxpayers deserve and can afford.

The solution to California's pension crisis is obvious to all but those lucky few who benefit from the current system. I have introduced a constitutional amendment to close the public-employee defined-benefit programs to new employees starting July 1, 2007. Instead, new public employees would be offered the same type of 401(k) program provided by most private-sector employers. Each unit of government would be able to design its own benefits package within constitutional limits set at levels comparable to those found in the private sector. Current public employees would have the option to transfer their retirement assets to the new plan. Existing government retirement agencies could offer low-cost investment services that would be attractive to public employers offering defined contribution plans.

This reform proposal would not impact the benefits promised to any current public employee or retiree. The promises made for a secure retirement will be kept. It's just that state and local taxpayers cannot afford to continue to make these overly generous promises to new hires. It's time to stop the bleeding.

During his State of the State speech, Gov. Arnold Schwarzenegger endorsed my plan, and I introduced it again in the special session he called for the next day. I also am working with the Howard Jarvis Taxpayers Association to give voters a chance to make the much-needed reform, should efforts in the Legislature fail.

Politicians too often wait for crisis and controversy before they address an urgent problem. The evidence is clear that our current defined-benefit pension system must be reformed. What is unclear is whether the special interests and their Democratic vassals in the Legislature will agree to a responsible solution. CRO

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