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Abstract: As February 2005 drew to a close, California Governor Arnold Schwarzenegger faced increasingly vociferous attacks from labor unions, and other interest groups, over his proposed public employee pension reform. California had been facing a serious budget crisis. Like many states and municipalities, California's employee pension plans had become seriously underfunded. In an effort to lower the cost of the employee retirement plans, Schwarzenegger supported a plan that enrolled new employees in defined contribution plans.
Learning Objective: The case addresses the nature of California's budgetary crisis, and the extant state defined benefit plans. In addition, it highlights the differing perspectives regarding pension plan reform, and the challenges in arriving at a solution.