How irrational are California public pensions?

Home > Economics

How irrational are California public pensions?

Monday, December 1st, 2008 | Economics |

How irrational are California public pensions? This irrational:

The California state government provides a “defined benefit” pension plan to each of its employees. Such “defined benefit” pension plans are far more generous than any 401(k) or defined contribution pension plan available from any other employer in the state! In fact, the plan is so generous that it makes the average state employee a millionaire after only 22 years of work!

Is the state’s pension plan overly generous? The Sacramento Bee and Governor Arnold Schwarzenegger have been whining about it lately — are they jealous? The state’s own Legislative Analyst has determined that California’s pension plan provides nearly twice the benefit of the next highest state.

Other comparisons are in order. The vast majority of American corporations have now eliminated “defined benefit” pension plans — only 6% of Americans in the private sector have access to such plans. American companies have terminated over 17,000 such plans in the last 20 years. IBM, one of the bluest of the blue chip companies, terminated its “defined benefit” pension plan in 2005. Hewlett Packard, a major California employer, followed by terminating its plan later that same year.

I’m picking on California because that’s just how I roll, but closer to home Knox County adopted a defined benefit pension for the sheriff’s department in 2007. What’s even more amazing is that the plan was retroactive for previous years of service. For retiring sheriff Tim Hutchison the new plan, enacted a few months before he left office, meant his pension jumped from $20,000 per year to $80,000 per year for the rest of his life. The new pension plan will cost Knox taxpayers $100 million over 20 years.

Previously:
- State pension funds heading for insolvency
- How irrational were California real estate prices?
- California attempts to build world’s most *optimistic* commuter rail