Again, if the shortfalls are made up on the contribution side (which I believe will be the case), then current employees will be liable for 50% of the “guarantee.” As it stands, this is the most likely scenario, IMHO. It’s also not true that taxes will have to be raised to pay for the employer portion of the contribution increases. Many employers are currently putting aside money to cover this, and they will make cuts before they increase taxes.
You also have to note that the new contribution formulas mean that the employer portion of the contributions will move to the low side of historic norms (as a percentage of payroll). That potentially leaves more “pension” money in the coffers that can be used to cover some of the shortfalls if they set aside amounts equivalent to historic norms. Of course, being politicians, they are just as likely to spend that money somewhere else (and unions will be wrongly blamed, once again), so we’ll have to see how they handle things.
If shortfalls are made up on the benefit side, then taxpayers will foot the bill. I seriously doubt that this will be the way the shortfalls are addressed, though it is possible that there may be a combination of the two — benefit and contribution-side fixes.
I also know that CalPERS is prepared to lower their return assumptions even further. They fully understand what they are dealing with and have their finger on the trigger. Governor Brown’s reforms will make it politically easier for them to do so.
Don’t give unions so much credit. They don’t have nearly as much sway over this issue as you seem to think they do.
