A Pension Plan from Fantasyland

Pension reform has been a hot topic over the last year. Just witness the chaos in the Wisconsin statehouse and the upcoming Ohio election to see what is at stake.

In today’s Washington Post, the editors argue that pension reform is the only option if states and localities want to keep providing services. They praise the recent proposals from Governors Cuomo of New York and Brown of California. Special praise goes to Governor Brown for his hybrid plan that combines a limited pension with 401(k)-style savings. They only fault Brown’s lack of reform for current employees. The Los Angeles Times endorses this as a starting point for pension reform.

The city of San Francisco has 26,000 employees and 28,000 retirees. It is becoming difficult to maintain a public work force when most of the budget is tied to pension obligations.

My idea is to pass a law that requires state and local governments to fully fund pensions in the same year employees earned them. The government can still use the magical number of 8.5% return on investment, but if the retirement fund earns less during the fiscal year, the employees will have to contribute more the next year to make up the difference.

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