A number of mayors from cities in California like Anaheim, San Bernardino, San Jose and Santa Ana have banded together to create the Coalition for Fair and Sustainable Pensions to address state pension plans that they call “unsustainable.” A statewide ballot initiative the group is pushing would amend the state’s constitution to allow state agencies and cities to negotiate retirement and health care benefits prospectively.
The initiative, the “Pension Reform Act of 2014,” would give those governments the tools needed to address the issues of unfunded pension liabilities. If those issues are not addressed, they could lead to more municipal bankruptcies similar to the ones filed in Detroit and Stockton, according to statements by the Coalition.
Currently, private pension plans and government agencies in 18 states may restrict their pension benefits prospectively. Others, including in Michigan and in California, may not be able to do so unless amendments to their state constitutions are enacted.
With higher pension costs due to expected lower rates of return and huge unfunded liabilities, adjustments have to be made by raising tax revenue, cutting services or adjusting benefits. Actions by the California Coalition and other state initiatives seem to indicate that thoughtful legislative action is better than having to resort to costly and time consuming bankruptcy proceedings.
