Governor right to scale back pensions

The Legislature's difficulty closing the current $24 billion budget shortfall will be minuscule by comparison if lawmakers don't come to grips with a looming and far more devastating fiscal catastrophe: hundreds of billions of dollars in unfunded retirement benefits for government employees.

Gov. Arnold Schwarzenegger, who in recent weeks has sounded like the fiscal conservative he once claimed to be, proposes a reasonable solution. He calls on the Legislature to prudently scale back pension and retiree health benefits for new hires. Existing and retired state employees would be unaffected, except that his plan might ensure there's enough money to pay them, too.

The governor's plan would save $93 billion between now and 2040 — $19 billion in health care costs and $74 billion in pension payouts. Taxpayers already kick in more than $3 billion a year to the pension fund, almost 10 times more than a decade ago, when benefits were dramatically increased based on too-optimistic investment expectations.

The unfunded obligations "threaten to consume growing portions of the general fund and squeeze out funding for higher education, welfare, environmental protection and more programs," the governor's office warned. For that reason alone, it's appropriate for the Legislature to deal with pensions during the ongoing budget negotiations.

In 1999 the Legislature boosted benefits for employees retiring after Jan. 1, 2000. Some retired public safety workers can draw more than 100 percent of their working salaries. Among other changes, Mr. Schwarzenegger would postpone retirement age to 60.

Predictably, government unions complained the changes are "unequal pay for equal work." But no one is forced to go to work for the state and accept the new benefit package. Mr. Schwarzenegger is merely proposing different benefits to conform to more realistic forecasts.

Ideally, the state should move new hires into 401(k)-type plans, based on defined contributions rather than defined benefits. The recommendations are hardly far afield from typical human-resources practices. Moreover, California taxpayers shouldn't be penalized because previous legislators didn't consider that stock markets decline as well as rise.