BLOOMBERG.COM
By Romy Varghese
Along with death and taxes, Californians have counted on another inevitability: once pension promises are made to public employees, they can’t be rolled back.
That belief, which has guided officials as they deal with mounting bills to cash-strapped retirement plans, was shaken in August when a state appellate court said benefit cuts are permissible if the pensions remain “reasonable” for workers.
The Marin Association of Public Employees, which lost its lawsuit seeking to prevent the county from reducing the final salary levels used to calculate pension payments, says it will ask the state’s Supreme Court to overturn the ruling. If upheld, it would give California and its local governments a way to cut costs just as lackluster investment returns threaten to leave them under pressure to pump more money into retirement plans.
State and local pensions across the U.S. have $1.8 trillion less than needed to cover all the benefits owed in the decades ahead, according to Federal Reserve Board data. The need to make up for such shortfalls has contributed to credit-rating cuts to Illinois, New Jersey and Chicago. Such financial pressure has also been acute in California, where it helped bankrupt the cities of Stockton, San Bernardino and Vallejo.