Abstract
California’s usage of a defined benefit program goes back to its creation in the 1930s. Over the years, the defined benefit system struck a natural balance between retirement liabilities and the assets available to cover these liabilities. Unfortunately, that balance was disrupted in the early 2000’s. This imbalance occurred through increased pension benefits resulting in more liabilities, reductions of current assets through losses in the stock market, and ever presents budget deficits at the state and local levels. All of these events played together into the creation of new unfunded liabilities, which the state and taxpayers must fulfill. As of 2010, the cost of California’s unfunded liabilities range between $39 billion to $239 billion over 20 years. In light of the rising cost of unfunded liabilities, constant budget deficits, and the lack of citizens’ support for California's current public pension systems; is it within California's best interest to reform the current pension system, abolish the current pension system and implement a new system, or to maintain the status quo? Conclusions Reached A Criteria Alternative Matrix helped to analyze the positive and negative aspects of each alternative in order to find the optimum policy alternative. Through this analysis, a recommendation was made that California abandon the status quo and implement a hybrid cash balance retirement plan to mitigate current liabilities, and halt the creation of new liabilities.