California faces a structural crisis in pension obligations; growing costs and a decreasing ratio of contributors to benefactors have led to worries about sustainability. Panelists agreed that this is one of the public-policy issues in most need of reform. "This issue of pensions and unfunded liabilities is the biggest fiscal issue facing California," said Assemblyman Keith Richman, "and one that we need to address." State entities risk going bankrupt, he said, or "dying by a thousand cuts."

The City of San Diego, Conta Costa County and Orange County each have billions of dollars' worth of unfunded liabilities, said Richman. The Los Angeles Unified School District, which owes about $10 billion in employee pensions, faces a similar problem. The amount is equivalent to total state spending on the University of California system, and Richman noted that there may be a causal relationship – money that could be spent on education could be diverted for pension obligations.

The problem, he said, is caused in part by employees retiring at young ages. "We now have people retiring at age 50 with more than a hundred percent of their salary (paid out in benefits)." He argued for a hybrid pension plan and a general retirement age of 65 years for government employees as potential remedies.

Carl DeMaio of the Performance Institute spoke at length about the San Diego City employee pension problems, brought on, he said, by mismanagement, personal enrichment schemes and disclosure failures. He argued that the failure to reform public pension benefits would affect the financial futures of not just our children, but of our grandchildren, and that a comprehensive pension benefits reform package must address three key questions: Does it provide for a quality work force? Does it provide for greater retirement security? Is it affordable? He maintained that the underlying problem within the system is the fact that too many benefits have been promised. This is especially true in the public sector, he said, where employees are enjoying "free lunches," Pension benefits, as opposed to salary hikes, are a popular means to provide for employees in the public sector since these costs don’t appear in current budgets.

Representing a different perspective, Dave Low of the California School Employees Association argued that the estimated $300 billion in total unfunded liabilities must be viewed in proper perspective, and that the stock markets plunge in 2000 had a significant effect on the value of pension funds. Therefore, he said, the problem is not structural in nature. He emphasized the importance of a long-term perspective that accounts for fluctuations and noted that several programs, including that of San Francisco, are in fact fully funded.

Low refuted the argument that there are negative causal relationships between pending school pensions and university investments. Instead, the payments to teachers and staff pensions should be understood as a necessary and fair investment given that "50 percent of school employees don’t get retirement benefits" at all and that those who do retire early often must because of job-related or other health problems. The average teacher pension is just $800 per month, he added, saying that teachers "are not retiring in luxury."

Although participants disagreed over the magnitude and means for reform, all agreed that there needs to be an effective policy addressing the issue, and sooner rather than later. Moderator Minerd concluded quoting economist Milton Friedman: "There is no such thing as a free lunch."

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