For pension strategy, look to peach state.

SAN Diego is the poster child of public defined-benefit pension plan abuse.

The city has been referred to as "Enron by the Sea," and before his resignation as mayor on April 25, Dick Murphy's lack of leadership caused Time magazine to recognize him as one of the three worst mayors in the country. A nearly $1.4 billion underfunding of a pension plan can do this to a mayor.

The participants of defined-benefit pension plans will lay the blame on recent poor market performance. But one would be wise not to hang one's hat on this excuse. An analysis of Contra Costa County's underfunded pension plan found that only 2 percent of its $1 billion liability was due to market performance.

Another well-worn excuse is that every other pension plan in the country is facing the same underfunding issues. Well, not everyone is.

The state of Georgia's two major public pension plans, the $42.4 billion Teachers Retirement System and the $12.4 billion Employees' Retirement System, are fully funded, 101.1 percent and 100.5 percent, respectively.

The state of Georgia is succeeding because it utilizes conservative asset allocations and actuarial assumptions. But what makes Georgia stand out is a statutory requirement that any increase in retiree benefits be immediately funded after it is authorized by the state Legislature.

In August 2004, the Orange County Board of Supervisors approved an extremely generous retroactive benefit that created another $300 million pension-plan funding obligation. If the county had an ordinance in place requiring immediate payment, it's doubtful that the benefit increase would have been approved.

I am reminded of the time I counseled a client who was living large and complaining about being financially strapped. I casually mentioned that I followed the principle of not borrowing money to purchase depreciating assets, like an automobile. "Are you crazy? If I had to pay cash, I would never have purchased my new Corvette." Exactly.

Here in California we have been adding generous retirement benefits to public defined-benefit plans and doing it with a credit-card mentality.

San Diego has done some serious soul searching. In September, its Pension Reform Committee released the following recommendation, among many:

"The city charter should be amended to require that for all new pension benefit improvements the plan will use an amortization period no greater than five years for any past service liability, effective immediately."

That's a little more generous than the state of Georgia. But Orange County relied on a 30-year amortization period for its most recent pension plan enhancement.

That means the $300 million obligation will cost another $450 million in interest by the time the last payment is made in June 2036. If it were paid off in five years, the interest costs only would be about $72 million! Such is the joy of not paying off your debts earlier.

If California and its municipalities had followed Georgia's conservative approach to managing defined-benefit pension plans, we would not be debating about pension reform.

Our state's elected officials must stop the over-promising. They must stop the many forms of abuse to which a defined-benefit plan is vulnerable. And they must propose to pay for new enhanced benefits immediately.

Short of this, the car keys must be taken away. And defined-contribution plans will become the norm for new employees joining the municipality workforce.

Taxpayers still will have the large rat of costs, foisted on us by our elected leaders, going through the proverbial python. But, revving the car at too high an RPM level eventually will kill the engine from stress.

Mayor Murphy is our first victim. Before we have any more we had better learn from our successful neighbors in the Peach State.

John M. W. Moorlach is the Orange County treasurer-tax collector.