Taxpayers, Pensioners Riding a Wave of Bankruptcies in Detroit and California
Increasing employee pension and retiree health-care contributions and retirement ages are good first steps toward fixing the troubled cities’ financial problems – and one that many state and local governments have taken – but the experience of California shows that it will not be enough. It is simply too easy under existing defined-benefit pension plans to fudge the numbers and pass along unaffordable costs to taxpayers that will not be known for many years. Switching to 401(k)-style retirement plans, as the private sector has done for several decades, would make government pension contributions much more transparent and stable.
Even this would only stop the bleeding, as it would still take years to accumulate significant savings.