Solutions to California's Pension Disaster

Solutions to California's Pension Disaster

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Whether Meg Whitman or Jerry Brown become chief executive of what’s been called the 8th largest economy in the world, I hope someone’s paying attention to an October report, Addressing California’s Pension Shortfalls: The Role of Demographics in Designing Solutions,” from one of California’s more thoughtful think tanks, The Milken Institute. The warning to the next governor  is that incremental changes in the state’s pension system will not be enough to tackle the demands exploding from an increasingly aging population: Between now and 2050, the number of seniors in California triples to 11.6 million, putting pressure on working-age tax payers footing the bill.  If California sticks with status quo, pension obligations will grow to five times the total state tax revenue as soon as 2012. And, pension liability will have tripled from 2009 to 2014.

The report included recommendations that ranged from raising the retirement age and increasing employment contributions to something called risk-sharing, where the beneficiary puts part of their defined benefit plan in the equivalent of a 401k.  At the Milken conference, a panel including California’s treasurer, the Senate majority leader, the heads of the Association of Highway Patrolmen and Teachers’ Retirement System on one panel, discussed how a hybrid risk-sharing program would protect workers.

But California’s fiscal condition will need much more than marginal tweaks and political nods on risk sharing.  Instead, there ought to be a bold and comprehensive strategy on aging as a source for increased productivity, economic drive and wealth creation. How, you may ask?  Keep the aging population healthy so that a large enough proportion of these “seniors” can stay in the work force and add economic value. Then create tax incentives for senior citizens to work and employers to keep them working.  And top it off with truly basic changes in how pensions are calculated to offer further incentive to keep working. Then there might be a chance California’s pension system will be sustainable over the next decades of their aging population. 

Executive director of the Global Coalition on Aging, Michael W. Hodin, Ph.D., is also managing partner at High Lantern Group and a fellow at Oxford University's Harris Manchester College.