A Solution to the Public Pension Problem

The finances of the public pension systems in California (and other states) are a problem.  There is a way to clean up the mess.

Discontinue the public pension systems and move all public employees to a 401k plan.

It would work like this: at a specified date (I’ll use January 1, 2013 as an example) all public employees would stop participating in the public pension plans.  The expected benefits would be frozen at that point.  The assets would remain in the plan and the participants would be able to draw on them as scheduled. 

On January 1 2013, all public employees would be able to participate in a 401k plan.  Under that plan they could contribute up to 10% of their before tax pay to the plan.  If they leave public service, they can roll the assets of their plan over to another employer’s 401k or into and Individual Retirement Account (IRA)

Those employees that choose to not participate do not have to. The can setup their own IRAs separately.

This is the path that the private sector has been following for a couple of decades.

The state employees would begin to pay Social Security taxes as CALPERS participants do not currently participate in SS.

As the public workforce ages, the number of participants will decline through attrition until CALPERS is no more.

This would clear up the problem and put the public sector more in line with the private sector.