By Ed Mendel
Monday, March 11, 2013

A nationwide study, including CalPERS and CalSTRS, projects that huge pension fund losses during the financial crisis will be offset over three decades by a wave of recently enacted cost-cutting reforms — but only if several things happen.

–Pension fund earnings forecasts must hit their target. Critics say the forecasts, 7.5 percent a year for the two California funds, are overly optimistic and conceal massive debt.

–Government employers must make their actuarially required contribution to the pension fund each year. CalPERS has the power to demand full payment. CalSTRS contributions, frozen by legislation, are $4.5 billion a year short of the required amount.

–The cost-cutting reforms must not be rolled back. A state worker pension cut under former Gov. Pete Wilson in 1991 was followed by a major retroactive pension increase under former Gov. Gray Davis, the trendsetting SB 400 in 1999.

The paper issued by the Center for Retirement Research at Boston College, led by Alicia Munnell, is one of the first looks at the long-term impact of the reforms, drawn from a sample of 32 plans in 15 states.

“In short, states have made more changes than commonly thought,” said the paper issued last month. “Whether these changes stick or not is an open question.”

Munnell is not an advocate of the pension status quo. She has said the best retirement plan is a “hybrid” combining a smaller pension with a 401(k)-style investment plan, shifting some of the risk from the employer to the employee.

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