California’s Public Sector Pension Plans in Perspective

John G. Kilgour, Professor Emeritus at California State University, published “California’s Public Sector Pension Plans in Perspective” in the May/June 2011 issue of Compensation & Benefits Review. Dr. Kilgour kindly provided the following responses to his article.

What inspired you to be interested in this topic?

This is one of several pieces I have done on various aspects of pension plan funding and other aspects of retirement income topic over the years.  On one level, it is an extension and update of earlier efforts.  On another level, it is somewhat personal.  As a retired public servant (professor) with a pension (CalPERS), I am troubled by the amount of misinformation and the vehemence of the attacks on sector pension plans with the implied criticism of their participants (employees and retirees).

Were there findings that were surprising to you?

The findings themselves, no.  The extent of the misinformation, yes.  It is seldom, if ever, mentioned that state and local government employees usually pay for a significant portion of their pension plan (3 to 10% of earnings) regardless of the funded status of the plan. Employer contributions, on the other hand, fluctuate with the funded status and in much of the 1990s were very low or even zero.  During and following the recession of 2001, employer contributions skyrocketed.  They then had recovered nicely and were at or near full funding by 2007.  With the advent of the Great Recession that began in late 2008, underfunding increased even more dramatically while state and local revenues declined.  Had employer been required to contribution enough to cover “normal costs” (current benefit and administrative expenses) during the good years, we would not be in this mess.

How do you see this study influencing future research and/or practice?

Hopefully, it will help redress the balance and redirect the blame game.  I do not mean to imply that there are no problems with public sector pension plans or that they are all the fault of governmental employers; although, elected officials and their allied employee organizations usually negotiate the plans and have caused some of the problems.  There is also a certain amount of fraud and, especially, abuse.  However, that is mostly done in accord with the provisions of the plan and with the connivance of management.  Things like allowing unused vacation, sick leave and overtime pay to be included in the pension benefit calculation at the retiree’s final pay rate should be greatly curtailed.

I do not mean to imply that things are hopeless or that the problems are unsolvable.  A great deal of public pension reform has already been adopted in California and throughout the country and there is more on the way.  This should, by all means be encouraged.   Also, when the FY 2010 data become available, the extent of underfunding will be much reduced.

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