Cash-Strapped Calif. Weighs New Pension Plan

Wednesday, 22 Aug 2012 03:36 PM

By Fran Tarkenton

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The definition of insanity, according to the popular quote from Albert Einstein, is “doing the same thing over and over again and expecting different results.” Someone needs to send that memo to the California state legislature, because they need an intervention!

California’s State Senate passed a bill creating a state-run pension plan for private sector workers whose employers do not offer retirement plans. The Assembly takes it up soon.

Although the state uses the language of Individual Retirement Accounts, they haven’t fooled anyone. News outlets both local and national are calling it what it is: It’s a pension plan.

The people of California know all about pensions — and the problems they pose when their unfunded liabilities pile up. The California Public Employees’ Retirement System — Calpers — is the largest public pension fund in the country — and its unfunded liabilities are currently $290 billion. Calpers guarantees a 7.5 percent return, but last year only managed a 1 percent return, adding billions more to its liabilities.

According to the Institute for Economic Policy Research at Stanford University, California’s various state and local pension systems have unfunded liabilities of at least $500 billion altogether. That is the math that forced Stockton and San Bernadino into bankruptcy, with others on the ledge.

The math is obvious: the pension systems are making huge promises but they are finding they cannot get enough return on their investments to satisfy their promises, and eventually the money runs out.

But it’s not just about math: it’s about morality. California and the people running its pension plans have made promises to people, who made choices based on those promises. When the money runs out, those people are going to be left high and dry, and that is just wrong. They were lied to — and now California wants to create another pension plan for 5-7 million more people? The Wall Street Journal estimates the new plan would be four times larger than Calpers.

The only way to make up the shortfalls, of course, is to hold someone else liable for the inevitable unfunded liabilities. But who? The bill’s sponsors have disingenuously tried to assure every possible party that it won’t be them.

Don’t worry, small business, you won’t be held liable, they say. Don’t worry, taxpayers, you won’t be handed the bill, they say. But when push comes to shove, you can bet that those two groups will most certainly be held responsible.

A Wall Street Journal editorial on Wednesday speculates that the bill is a cynical ploy to distract voters from the disastrous public pension funds by giving them an unfunded pension plan of their own. But here’s a simple truth: Bad news does not get better with age. You can’t make one problem go away by ignoring it and covering it up with another, bigger mistake.

Before it’s too late, the people of California need to stand up and say enough is enough. The answer to getting the state’s economy roaring again is not to contrive unsustainable schemes and make crazy promises; the answer is to encourage small businesses and entrepreneurs.

The answer is to make it easier for innovators to create great products and services that provide value to their customers. The answer is to do something different from what they’ve been doing, not try the same thing over and over again, expecting different results.

Fran Tarkenton is the Founder and CEO of OneMoreCustomer.com, a web resource for Small Business Advocacy and Education. After his Hall of Fame football career, Fran had a successful career in television and then turned to business. He has founded and built more than 20 successful companies and now spends his time coaching aspiring entrepreneurs. Read more reports from Fran Tarkenton — Click Here Now.

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