California faces crisis as pension liabilities soar to $285 billion

In California, lawmakers are contemplating changes to state-run pension plans that could adversely affect taxpayers and worsen existing financial liabilities. As of the end of 2023, these pension plans had accumulated a staggering $285 billion in unfunded liabilities, a situation that has raised serious concerns among fiscal policy experts. Previous reforms initiated by former Governor Jerry Brown sought to alleviate the burden of these unfunded liabilities by adjusting retirement benefits for new hires. These reforms included limiting the size of retirement benefits, raising the retirement age, and increasing employee contributions. Despite evidence of cost savings from these reforms, certain legislators, in collaboration with public labor unions, are pushing to reverse them. By proposing Assembly Bill 569 and Assembly Bill 1383, they aim to eliminate existing limits on pension benefits and potentially undo critical age and contribution requirements, which could lead to further financial instability for California. The California Public Employees' Retirement System, commonly known as CalPERS, has verified that the Pension Reform Act (PEPRA) has already saved taxpayers around $5 billion over the past decade and promises more savings over the next ten years. However, these achievements are at risk if the proposed bills are passed. Supporters of the new legislative measures argue they are necessary for attracting and retaining public-sector employees. However, surveys indicate that pension benefits are not the primary deciding factors for employees; rather, they prioritize higher salaries and improved working conditions. Opening the door to increased pension costs while the state struggles with a massive shortfall could exacerbate the existing debt crisis that public workers and taxpayers now face. This precarious situation raises questions about the wisdom of reversing pension reforms, especially since the state has not yet reached its full funding goal. Such actions could send California back into the costly pension funding quagmire it attempted to escape over a decade ago. If the reversals are enacted, they may significantly increase unfunded pension liabilities and burden California taxpayers with additional billions in costs in the years ahead.