A partial fix for California’s pension mess

Gov. Jerry Brown unveiled the outlines of a public employee pension reform bill Tuesday that’s a step back in some notable ways from the 12-point plan he laid out last October. The measure, which top Democrats will try to rush through the Legislature this week, would do nothing about rapidly rising retiree healthcare costs, and it abandons Brown’s proposal to restructure retirement pay for new employees. Yet it would still make badly needed changes to shore up pension funds, help cities struggling with outsize costs and curb abuses in the system. It’s not the whole solution, but it would provide many of the right parts.

Public employee pension costs are projected to climb to alarming levels, driven in part by larger workforces, higher salaries, more generous benefit formulas and underperforming investments. Although some local retirement systems remain in good shape, others are grossly underfunded, forcing local officials to devote an ever-larger percentage of their budgets to meeting their obligations. Meanwhile, federal law and the state Constitution prevent state and local governments from reneging on the benefits promised to current employees.

Brown’s original proposal called for new workers to receive a “hybrid” retirement benefit that combined a much smaller pension with a 401(k) plan and Social Security benefits. But he gave up that plan, which would have shifted some of the financial risk from the state onto its workers, in the face of high short-term costs.

Instead, Brown is seeking to roll back the increase in maximum pension benefits that the Legislature enacted more than a decade ago, much to its regret. He also proposes new mechanisms that local governments can use to require workers to cover more of the cost of their retirement pay and the shortfall in their pension funds. Other provisions would cap the size of pensions for highly paid workers, raise the retirement age for new employees and bar retroactive pension increases.

The governor is making several leaps of faith with this package. He’s counting on the Legislature to address retiree health costs next year, and not to undo this year’s reforms by a simple majority vote if and when the economy booms again. Current workers may sue to block provisions requiring them to contribute more to their pensions. And although his proposal would enable local governments to seek changes in benefits that strengthen pension funds, it’s still up to officials to persuade local unions to go along.

Nevertheless, Brown and state lawmakers can’t afford to reject a partial solution in the quixotic search for a comprehensive one. Although the details were sparse Tuesday, Brown’s proposal appeared to be an important step in the right direction.