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San Jose City Council Capitulates to Police Union Power

“He told the class to take advantage of the academy, and then find jobs elsewhere. The police union tries to get us to leave the department.”
–  Anonymous source to NBC Bay Area, television report “Another San Jose Police Recruit Says Union Tried to Get Cadets to ‘Find Jobs Elsewhere’,” Oct. 28, 2014 (excerpt begins at 1:38 in report).

A precedent setting new development in San Jose last week provides abundant evidence of just how powerful local government unions really are in California. As reported today in San Jose Inside and elsewhere, an embattled city council has tentatively approved a new contract with San Jose’s police union that awards them “a 5 percent ‘retention’ bonus and an 8 percent raise over the next 16 months. In addition, former officers who return to the force in the next year can claim a 5 percent signing bonus.”

More significantly, at the same time, the San Jose City Council has tentatively agreed to drop their appeal of a court ruling that overturned a key part of a San Jose pension reform, a reexamination of the so-called “California Rule.” As pension expert Ed Mendel reported yesterday in PublicCEO, “The “California rule” is a series of state court decisions widely believed to mean that the pension offered on the date of hire becomes a vested right, protected by contract law, that can only be cut if offset by a new benefit of comparable value.

In practical terms, this means that pension benefit formulas, according to the California Rule, cannot even be trimmed for future work performed by existing employees. San Jose’s pension reform Measure B, passed by 70% of voters in 2012, presented city employees with a choice – they could either contribute an additional 16% towards their pension benefits via payroll withholding, or they could accept lower pension benefit accruals from then on. Nothing they had earned to-date would have been taken away from them.

Despite legal opinions that claim the California Rule is not well established law, and despite that the California Rule is contrary to the law governing public sector pensions in most states, and contrary to all law governing private sector pensions everywhere, San Jose’s local elected officials have capitulated.

THE INHERENT HYPOCRISY OF THE ‘CALIFORNIA RULE’

It is difficult to overstate just how hypocritical the union’s position is on the issue of modifying pension benefit formulas. Because the problems with pensions began back in 1999, when SB 400 raised pension benefit accruals per year for the California Highway Patrol. Within a few years, most every agency in California followed suit. And these pension benefit enhancements were applied retroactively to the date of the employees’ hire.

That is, starting in 1999, agencies changed the pension benefit formula so that, for example, police and fire pension accruals were not just increasing from 2% to 3% per year from then on, but retroactively to the day each employee was hired. So someone who would have earned a pension equivalent to 2% of their final salary times the years they worked would now earn a pension equivalent to 3% of their salary times the years they worked, even if they were going to retire within the next year or two.

What San Jose Measure B tried to do was not roll back pension benefits from 3% per year to 2% per year for years already worked. It only tried to reduce the benefit accrual, prospectively, for years still to be worked. And even that was too much for these unions.

THE DEVASTATING COSTS OF SAN JOSE’S POLICE/FIRE RETIREMENT BENEFITS

If taxpayers could afford to pay these pension benefits, there might be a stronger argument to preserve them. But San Jose’s independent Police and Fire Department Retirement Plan, according to their most recent financial report, is not in great shape financially. Keeping it afloat requires staggering sums of money from taxpayers that are only going to increase each year. Here are highlights:

(1) The plan as of 6-30-2014 (most recent data available) was 77.5% funded (page 114). This means that instead of earning their officially projected annual return on investment of 7.125% per year, just to avoid becoming more underfunded, they will have to earn 9.2% per year. Just to stay even. That is their so-called “risk free” rate of return.

(2) The fund truly is “risk free” to participants, because the taxpayers pay most of the expense and cover the losses when the market fails. In FYE 6-30-2014, police and fire employees contributed $21.1 million into their retirement fund, and taxpayers (the City of San Jose) contributed $123.6 million (page 69), nearly six times as much. How many “six to one” matching contributions are out there for corporate 401K plans?

(3) The unfunded liability for the SJ Police and Fire Retirement Plan was $806 million (page 114) as of 6-30-2013 (most recent actuarial data), equal to 436% of payroll. Or looking at this another way, the city’s pension contribution was $123.6 million, whereas their “covered payroll” was $184.6 million. That is, for every dollar San Jose pays to put police and firefighters on the street, they have to pay 67 cents to the pension fund.

(4) It’s not just pensions. The SJ Police and Fire Retirement Plan includes city funded retirement health insurance benefits. How’s that fund doing? As of 6-30-2013 (most recent data), that plan was 11% (eleven percent) funded, with an unfunded liability of $625.5 million (page 65).

(5) If you consolidate the financial data for San Jose’s Police and Fire Retirement Plan’s pension and healthcare (OPEB) plans, the most recent statements indicate they are 67% funded, with a total unfunded liability of $1.4 billion. If San Jose were to responsibly reduce their total unfunded liability for public safety retirement benefits, they would be paying far more than 67 cents for every dollar of payroll.

THE MISLEADING EMPHASIS ON AN EXODUS OF OFFICERS

Throughout this battle between fiscal realists and the police union in San Jose, the police have maintained that officers were leaving the city to work elsewhere or to retire. There’s no question that their ranks have thinned, perhaps alarmingly. According to SJ Inside, “the agency [currently has] 943 sworn officers out of a budgeted 1,109 positions.” And historically San Jose’s police department has had as many as 1,400 officers. But is the union thwarting efforts to fill the ranks?

Several news reports suggest that could be the case – starting with the local NBC television affiliate’s report quoted earlier. That anonymous source corroborated what another person stated publicly. According to the San Jose Mercury guest column entitled “San Jose police recruit: Union told class to quit right away for good of the department,” former police academy cadet Elyse Rivas writes:

“On the first day of the academy, our orientation included the opportunity to meet Jim Unland, the Police Officers Association’s president. In no uncertain terms, he blamed Measure B for the departure of hundreds of officers — and he told us that it would be better for the department and for us if we would just quit, right then and there. He said that our employment with the department did not help the POA’s cause in proving Measure B was killing the department’s recruitment capabilities. He urged us to find jobs elsewhere.”

Reached for comment earlier today regarding developments in San Jose, former Mayor Chuck Reed agreed with the substance of these allegations. Not only did he confirm reports of union representatives discouraging academy recruits from taking jobs with the department, but he also described other ways they thwarted recruitment:

There were reports of recruiting events held in the San Jose police union offices where they invited police recruiters in from other cities to encourage active San Jose police officers to take these jobs in other cities.

Reed also said “when we were trying to hire officers, we wanted to bring in retired police officers in to do the background checks so we could keep our active officers on the beat – but the union urged retirees to refuse to accept the work.”

In any case, Reed pointed out that the city had determined to reduce the size of the police force back in 2010, well before voters approved Measure B, saying “the police department headcount went down from 1,400 to 1,100 before there was any pension reform.” Reed believes that an ideal headcount for the San Jose police department would not require returning to 1,400, and that getting to the budgeted 1,109 positions would be a good first step.

SO HOW MUCH DO SAN JOSE’S ‘UNDERPAID’ POLICE OFFICERS MAKE?

Getting timely and accurate information on public pay is difficult because financial reports from public entities take a long time to produce and often omit important data. The most recent payroll records publicly available for the city of San Jose are for 2013. According to a search on Transparent California of San Jose city employees with “Police” in their job title, in 2013 there were 260 of them who made over $250,000 in pay and benefits, and an astonishing 806 who made over $200,000 in pay and benefits. Here’s the link:  San Jose city employees, 2013, with “Police” in their job title.

Pension information for San Jose’s retired police officers is complicated by the fact that the data includes firefighters along with police officers. Moreover, the average full-career pension estimates are understated because a significant percentage of the current participants retired before pension benefits were enhanced in San Jose – a process of “continual enhancement” that continued up until 2008. Using 2014 data acquired by Transparent California, the estimated average full career pension for a San Jose police/fire retiree is $99,116 – with guaranteed 3% per year cost-of-living increases. The number for recent, post-2008, full-career retirees is undoubtedly much higher. Here is a 2014 roster of all of San Jose’s police/fire retirees – note that individual retirement health benefits (unfunded liability of $625 million) were not provided – certainly adding a value of at least another $10,000 per year.

Are San Jose’s police officers underpaid? The average veteran officer makes pay and benefits worth well over $200,000 per year. Add to that the likely 5% “retention bonus, and the 8% raise over the next sixteen months per the tentative new agreement. You decide.

The personal attacks and confrontational tactics employed by the San Jose police officers union against their political opponents do not reflect well on the fine men and women who staff that department, who perform work of vital importance to society. Whether or not they intentionally urged officers to quit (or never join) the San Jose police force is almost irrelevant, despite abundant evidence that suggests they did. Because their real transgression against the people of San Jose, the taxpayers, the elected officials, and public safety itself, is to insist on levels of pay and benefits for their officers that are far more than the city can afford.

*   *   *

Ed Ring is the executive director of the California Policy Center.

RELATED POSTS

Why Pension Reform is Inevitable, and How Reforms Can Benefit the Economy, July 21, 2015

Retiree with $183,690 Annual Pension Attacks Pension Critics, June 9, 2015

Pension Reform is Bad for Wall Street, and Good for California, April 14, 2015

Is Deficient Recruiting the Real Reason for Police Understaffing in San Diego?, January 20, 2015

Conservatives, Police Unions, and the Future of Law Enforcement, January 6, 2015

Police Unions in America, December 9, 2014

Government Employee Unions – The Root Cause of California’s Challenges, June 3, 2014

Conservative Politicians and Public Safety Unions, May 13, 2014

How Much Does Professionalism Cost?, March 11, 2014  (The Kelly Thomas Story)

How Public Sector Unions Skew America’s Public Safety and National Security Agenda, June 18, 2013

CALIFORNIA POLICY CENTER PENSION STUDIES

California City Pension Burdens, February 2015

Estimating America’s Total Unfunded State and Local Government Pension Liability, September 2014

Evaluating Total Unfunded Public Employee Retirement Liabilities in 20 California Counties, May 2014

Evaluating Public Safety Pensions in California, April 25, 2014

How Much Do CalSTRS Retirees Really Make?, March 2014

Comparing CalSTRS Pensions to Social Security Retirement Benefits, February 27, 2014

How Much Do CalPERS Retirees Really Make?, February 2014

Sonoma County’s Pension Crisis – Analysis and Recommendations, January 2014

Are Annual Contributions Into CalSTRS Adequate?, November 2013

Are Annual Contributions Into Orange County’s Employee Pension Plan Adequate?, August 2013

A Method to Estimate the Pension Contribution and Pension Liability for Your City or County, July 2013

Moody’s Final Adopted Adjustments of Government Pension Data, June 2013

How Lower Earnings Will Impact California’s Total Unfunded Pension Liability, February 2013

The Impact of Moody’s Proposed Changes in Analyzing Government Pension Data, January 2013

A Pension Analysis Tool for Everyone, April 2012

 

 

 

Evaluating Public Safety Pensions in California

Summary: To accurately assess how much pension obligations for current workers are going to cost, it is necessary to calculate average pensions for retirees who retired after 1999 when pension benefits were enhanced.

Because public safety employees represent about 15% of California’s total state and local government workforce [1], but an estimated 25% of the total pension costs [2], this study focuses on the average pensions for public safety employees.

Public safety retirees who retired after 1999 after working for the city of San Jose, Los Angeles, or the many state and local governments participating in CalPERS, if they worked 25 years or longer, collected pensions and retirement benefits in excess of $90,000 in the most recent fiscal year for which records were available.

Among the three pension systems analyzed, San Jose had the most generous pensions; retired police and fire personnel who retired in the last 10 years, and who worked at least 25 years, earned an average base pension of $100,175 in 2012. Added to this was employer paid health insurance of worth about $10,000 per year. 

In Los Angeles, factoring in the value of the employer provided health insurance, the average post-1999 retiree with 30+ years of service collects a pension and benefit package in excess of $100,000.

In addition to pension and health insurance benefits, Los Angeles, San Diego, and other California cities offer their public safety retirees the “DROP” program, which enables qualifying participants to collect a lump sum payout upon retirement that – at least in Los Angeles – is so substantial it increases the average pension amount of all retirees by over $50,000, despite only being received by less than 3% of LAFFP members during the 2013 year.

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INTRODUCTION

The topic of public sector pensions quite rightly emphasizes the issue of financial sustainability, given the inherent long term nature of pension benefits. Typically these discussions center on a pensions system’s “funding ratio,” which represents the percentage of the fund’s liabilities that are offset by the value of their assets. A funding ratio of 100% means that a pension fund’s total assets equal their liabilities, that is, the assets are equal to the present value of the estimated future payment obligations to retirees. Any funding ratio below 80% calls into question the eventual solvency of a pension fund, and according to the American Academy of actuaries, even an 80% funding ratio should not be considered adequate. [3]

Debates over whether or not California’s public sector pension funds are solvent quickly boil down to debates over fundamental assumptions regarding future events, that, depending on how optimistic or pessimistic they are, can have exponential consequences.

Perhaps the most consequential of these projections is the assumed rate of investment return the fund expects to achieve, as most pension funds rely on investment returns to generate a substantial amount of their funding. Another key projection necessary for the fund’s long term fiscal solvency pertains to the expected average amount of time a retiree is eligible to receive their benefits.

Consequently, the fund must correctly forecast the expected age at which participants will retire and how long they will live. Understanding the effects caused by changes in these forecasts is crucial for anyone managing pensions, regulating them, or advocating a set of reforms.

Along with assumptions regarding future events, the solvency of public sector pensions have been affected by so-called “pension holidays” taken in the past, which refers to those years when the participating employers did not make their full contributions. Often these regular contributions were missed because the pension funds themselves waived the requirement during years when the investment markets were delivering excellent returns. [4]

The solvency of pensions is also affected whenever benefit formulas are increased. In California, starting in 1999 with the passage of SB 400, pensions for virtually all public workers were increased by approximately 50%. [5]

This benefit enhancement necessitated higher annual contributions by the employer, but in most cases the amount of additional cost presented to the employers by the pension funds was underestimated, because of optimistic rate-of-return expectations for the funds. So optimistic, in fact, that most all of the benefit enhancements implemented starting around 1999 were awarded retroactively. Needless to say, applying a 50% pension enhancement to an employee’s entire career – even for those employees about to retire – exacerbated whatever unfunded challenges may have existed anyway in the pension funds.

The purpose of this study isn’t to delve further into the causes or potential remedies for the financial challenges facing California’s public sector pension funds. But at a time when virtually every public sector pension system in California is increasing required employer contributions in order to preserve solvency, year after year, with no end in sight, it is relevant to report as comprehensively as possible on just how much current retirees are receiving in retirement pensions and benefits. [6]

To that end, the California Policy Center, in partnership with the Nevada Policy Research Institute, has acquired data directly from dozens of public sector pension funds in California, including CalPERS, CalSTRS, and about 25 other independent California-based pension systems. This information is available to the public at the website TransparentCalifornia.com.

Using this data, it is possible to construct an accurate and detailed look at what pension funds are paying current retirees. In this study, the focus is on public safety pensions, using recent data acquired from the California Public Employee Retirement System (CalPERS), the Los Angeles Fire and Police Pension system, and the City of San Jose Police and Fire Department’s Retirement Plan.

One important observation stand out: Public sector pensions are not applied equally in California. As will be shown, retirees who left state or local government service after 1999 are collecting far larger pensions than those retiring before the late 1999.

Additionally, retirees with less than 20 years of service credit are collecting pensions that are disproportionately smaller than those with 25 years or more.  Also, the so-called “base pension” paid retirees can be quite misleading. As we will show, public safety officers receive benefits and supplemental payments that result in much greater total benefits than the base pension amount indicates. Most pension plans offer health insurance coverage of significant value, supplemental payments, annuities, or payments associated with DROP (deferred retirement option plan) that are not reflected in the base pension amount.

Understanding the real value of the pension benefits a full-career safety officer can expect to receive in retirement is critical to addressing the issue of whether or pension benefits might be equitably reduced as part of a comprehensive plan for pension reform.

If pension fund contributions are becoming such a burden on city and county budgets that they have the potential to throw these public employers into bankruptcy, then either in negotiations to avoid bankruptcy, or through a bankruptcy, one way to restore the solvency and reduce the financial demands of a pension fund is to lower the amount retirees receive as a benefit. The more participants are affected by benefit cuts, the more modest the effect these cuts may have on any specific individual.

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METHOD AND ASSUMPTIONS

The focus of this study is public safety pensions, which are typically calculated using a “3% at 50” or “3% at 55” formula. The formula works as follows: “3% is multiplied by the number of years worked, times final salary.” Sometimes the pensionable salary is simply the final salary of the employee at time of retirement. It can also be formulated as an average of the final three years of salary.

In some cases, pensionable salary may still include the value, or a percentage of the value, of, for example, unused sick time that is cashed in at the time of retirement. Many of these so-called “spiking” tactics were deemed abusive of the system and eliminated with the passage of SB 400 in 2012. In any case, public safety retirees, on average, collect the largest pensions of any class of state or local government employees in California. According to the U.S. Census Bureau, active police, firefighters and corrections officers represent about 15% of California’s approximately 1.5 million full-time state and local government employees. [7]

In order to provide information on average public safety pensions that can provide insight into what currently active employees will be collecting, it is important to evaluate how much average pensions and benefits are for retirees who worked full careers and who retired in recent years. It is essential to break this information out separately from more general averages that include retirees who left service decades ago, because the pension formulas currently in effect for nearly all active personnel are the same as the ones used to calculate recent retiree pensions. To-date, pension reforms have only affected the benefit formulas earned by new employees, not existing employees. This means that any savings gained from pension reforms to-date will not be realized for 20 years or more.

Similarly, it is important to show pension benefits for employees who worked full careers, since this, again, is the only way to help foster accurate insight into how much pensions cost. Because these vital positions must be permanently filled, for every retiree who only worked a few years, earning a proportionately smaller pension, there must be additional hires who will also be collecting a partial pension. For this reason, normalizing pensions to “full-career equivalents” is necessary.

In order to highlight the effects of legislative actions such as SB 400 that retroactively enhanced pension benefits, as well as the disproportionally greater benefits of those who have accrued a full-career of service credit, the tables used in this study provide data that breaks out averages accordingly.

These tables, while intricate, follow a uniform format throughout the study:

– The vertical axis is the amount of the annual pension benefit. In all cases, the bars of data refer to average pensions received in their plan’s respective reporting year, including participants who retired decades ago. For CalPERS the data analyzed is the most recent available, calendar year 2012. For San Jose the data is from the 2013 fiscal year. Finally, the data from the LAFPP is for the 2013 calendar year.

– The horizontal axis has six blocks of data. Each block represents a five year range of retirement years, starting with 1984-1988, and proceeding in five year increments to the three columns on the far right, representing participants who retired in the years 2009-2013. Each of these sets of data have three vertical bars, representing participants who worked 20-25 years, 25-30 years, and over 30 years.

Finally, it is necessary to include benefits in addition to pensions in order to get a truly accurate impression of how much retired public safety employees in California receive in retirement benefits each year. Unfortunately, among the three pension systems being analyzed, only the Los Angeles Fire and Police Pension system provided this data. But while not disclosed elsewhere, they are present in virtually all retirement benefit plans for public safety retirees in California.

These benefits primarily include two types of compensation in addition to base pensions – they are payments towards health insurance and “Medigap” coverage or supplemental coverage to Medicare. In addition to health benefits, many safety officer plans offer supplemental pension benefits in the form of quarterly or annual payments in addition to their monthly benefit amount.

The LAFPP and other local safety pension plans such as the San Diego City Employees Retirement System (SDCERS) offer one of the most substantial forms of these additional benefits through a program known as a deferred retirement option plan, also known as DROP. In aggregate these distinctions are not relevant. However, the inclusions of these benefits are vital to any comprehensive analysis that wishes to accurately represent the true value of these benefits.

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PUBLIC SAFETY PENSIONS – CalPERS

Of the 483,902 individual retiree records provided by CalPERS, 48,863 were designated as “Public Safety” participants who retired between 1984 and 2013 with 20 years or more of service. Public safety retirees participating in CalPERS include California Highway Patrol, Correctional Officers, as well as police and fire department personnel from throughout the State of California that do not have, or are not members of, a local plan such as the LAFFP or San Jose plan.

The table below only shows base pension as that was the only data made available by CalPERS for the 2012 year. Naturally, any additional supplemental payments as well as health benefits received will increase these values.

There are six blocks of data, corresponding to year of retirement ranging from those who retired in 1984-1988 on the far left, to recent entrants on the right who retired in 2009-2013. In all cases, the amounts reported are the average pension paid last year. As can be seen, the amounts go up every year, that is, the more recently a participant retired, the bigger their pension. This is clearly the result of pension benefit enhancements that rolled through virtually all state and local government agencies – retroactively – starting in 1999.

As can also be seen from the six blocks of data, the longer a participant worked, the higher their pension. For example, participants who retired in 2009-2013 are depicted in three bars. Those who worked 20-25 years are shown in the lightest bar on the left side of the block; their average pension is $55,861 per year. In the medium shaded bar in the middle are those who retired after 25-30 years of service; their average pension is $82,926 per year. In the dark shaded bar on the right are those who retired after 30 years or more of service; their average pension is $99,908 per year.

CalPERS Safety Officers
Average Base Pension by 
Years of Service and Year of Retirement

20140404_Ring-Fellner_CalPERS-by-Svc-and-Ret_1

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 PUBLIC SAFETY PENSIONS – SAN JOSE

The San Jose Police and Fire Retirement Plan reported 1,953 individuals receiving a pension benefit for the 2013 fiscal year; the data analyzed here are for the 1,571 participants who retired between 1984 and 2013 with 20 years or more of service.

The table below only shows base pension because the San Jose Police and Fire Retirement Plan did not release information on health benefits or any other potential supplemental benefits. Again, there are six blocks of data, corresponding to year of retirement ranging from those who retired in 1984-1988 on the far left, to recent entrants on the right who retired in 2009-2013. In all cases, the amounts reported are the average pension paid last year. Also as seen with the CalPERS data, the amounts go up every year, that is, the more recently a participant retired, the bigger their pension, and the longer a participant worked, the higher their pension.

The differences shown between retirees before and after 1999 are striking. Almost all retirees post 1999 who have 25 years of experience or more are collecting pensions in excess of $100,000 per year, with the sole exception of retirees between 1999-2003 with 25-30 years experience who collected, on average, a pension of $90,108 in fiscal year 2013.

City of San Jose Safety Officers
Average Base Pension by 
Years of Service and Year of Retirement

20140404_Ring-Fellner_SJ-by-Svc-and-Ret

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PUBLIC SAFETY PENSIONS – LOS ANGELES

The Los Angeles Fire and Police Employees’ Pension plan reported 10,040 individuals receiving a pension benefit for 2013 [8]; the data analyzed here are for the 8,717 participants who retired between 1984 and 2013 with 20 years or more of service.

The table below only shows base pension, even though the LAFPP has provided benefits and DROP data that will be summarized in the table following this one. Again, there are six blocks of data, corresponding to year of retirement ranging from those who retired in 1984-1988 on the far left, to recent entrants on the right who retired in 2009-2013. In all cases, the amounts reported are the average pension paid last year. Also as already seen, the amounts go up for post-1999 retirees, although the variation isn’t nearly as striking with the LAFPP data compared with the CalSTRS and San Jose data.

City of Los Angeles Safety Officers
Average Base Pension by 
Years of Service and Year of Retirement

20140404_Ring-Fellner_LA-by-Svc-and-Ret

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TOTAL RETIREMENT BENEFITS – LOS ANGELES

The next table provides a more complete picture of public safety retirement benefits because it includes the amount of employer provided health insurance, which adds approximately another $10,000 to the actual retirement compensation received by LA Police and Fire retirees. As can be seen, when including the value of the employer provided health insurance, the average post-1999 retiree with 30 years of service collects a pensions and benefit package in excess of $100,000.

What the complete data from Los Angeles reveals is an additional program of astonishing value, referred to as “DROP,” which stands for “Deferred Retirement Option Plan.” Conceived as a method to retain skilled public safety personnel who would otherwise be eligible to retire, the DROP program permits the participant to “retire” but continue to work. During the time they continue to work, they collect their normal pay, but the amount they would have been collecting as a pension is deposited in an account bearing 5% interest. They no longer accrue pension benefits. The potential savings of this program – similar in rationale to pension obligation bonds – is that the pension fund returns during the same period will exceed 5% earnings guaranteed the pensioner. In practice the DROP program results in very large final year payouts to retirees in their first year of retirement – enough to skew the average annual total retirement payouts per retirees with 25+ years of experience over the past 10 years to over $150,000.

Due to the incomplete data received from many – if not most – of California’s pension systems to-date, it isn’t clear how many agencies offer DROP to their public safety personnel. It is apparently not offered in San Jose, but definitely is offered in San Diego. It isn’t clear whether or not some of the many cities and counties who participate in CalPERS offer DROP to their public safety retirees. But the DROP program is a striking example of how reports that only reference base pensions are not representative of what total retirement benefits often will include. Another example of this, not strictly a retirement benefit, but nonetheless a sum paid upon retirement, is the common practice of cashing out accrued sick and vacation time, something which can and often does add tens, if not hundreds of thousands of dollars to a public employee’s final year of compensation.

City of Los Angeles Safety Officers
Average Total Retirement Benefits by 
Years of Service and Year of Retirement

20140404_Ring-Fellner_LA-w-DROP-by-Svc-and-Ret_RFver3

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CONCLUSION

In recognition of the specialized skills required, and in order to attract and retain a workforce of the highest quality, it is certainly appropriate to pay a premium to active and retired public safety employees. But in the face of ballooning costs to California’s taxpayers to maintain pension solvency, it is also appropriate that anyone involved in discussions regarding reform be aware of just how much public safety officers currently receive in total retirement benefits. Here are some highlights:

  • CalPERS, with the largest and hence probably the most representative dataset, reports base pensions to average $99,908 for public safety officers retiring in the last five years with 30+ years experience; for retirees with 25-30 years experience, the average base pension was $82,926 if they retired in the last five years.
  • CalPERS retirees make far more if they retired after 1999, regardless of years of experience, because of the pension benefit enhancements that were awarded – retroactively – starting in that year. For all public safety participants retiring before 1999 with at least 20 years service, the average base pension is $52,179; for all participants retiring in 1999 or later, with at least 20 years service, the average base pension is $77,878.
  • When including the value of other benefits, primarily employer paid health insurance, the estimated value of the average CalPERS public safety retirement compensation increases by about $10,000 per year.
  • San Jose’s retired police and fire personnel who retired in the last 10 years, and who worked at least 25 years, earned an average base pension of $100,175 in 2012. Add to this at least the average value of employer paid health insurance of about $10,000 per year.
  • While Los Angeles does not report their public safety retiree pension benefits, on average, as generous as CalPERS or San Jose, when including the value of the employer provided health insurance, the average post-1999 retiree with 30+ years of service collects a pension and benefit package in excess of $100,000.
  • Los Angeles, San Diego, and other cities offer the “DROP” program, which in practice enables retirees to leave public service with a lump sum payout that – at least in Los Angeles – is substantial enough to increase the average pension amount by over $50,000 per participant.

To speculate as to whether or not this level of pay and benefits in retirement is appropriate or fair, even for former public safety personnel, is well beyond the scope of this study. But it should be observed that employer pension contributions in San Jose, for example, are on track to consume 25% of that city’s entire general fund within a few years. [9] And yet efforts are currently in progress to repeal portions of San Jose’s pension reform measure. Similarly, in Los Angeles, pension costs jumped to 18% of the budget in 2012-13. [10]

Another question that should be asked is why public safety employees are incentivized to retire after 25 or 30 years. While it is probably not wise to require officers in their 50’s or 60’s to occupy front-line roles in fighting crime or fighting fires, these veteran officers possess a great deal of experience that would be of significant value to their departments. Skilled officers can participate in training, management, administration, intelligence work, investigations, and logistical support – they might even oversee and operate the many automated systems such as micro drones that are inevitably going to become a vital resource for public safety agencies. There is no reason these individuals, with the skills they have acquired and talents they offer, to have to retire any earlier than anyone else.

In any case, the primary aim of this study was to put out accurate data regarding just how much public safety retirees in California receive in retirement pensions and other benefits. We have found that on average, a public safety retiree in California – working at least 25 years and retiring in the last ten years – earns a pension and benefit package in excess of $90,000 per year.

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 FOOTNOTES

(1)  U.S. Census Bureau, California Local Government Payroll 2012California State Government Payroll 2011

(2)  Brown and Whitman duel over public pensions, Marin Independent Journal, October 12, 2010

(3)  The 80% Pension Funding Standard Myth, American Academy of Actuaries, Issue Brief, July 2012

(4)  State pension funds: what went wrong, Cal Pensions, January 10, 2011

(5)  How California’s Public Pension System Broke, Reason Policy Brief, June 2010, page 5 “California Standard Pension Benefit Formulas Before and After SB 400”

(6)  California pension rate hikes loom after Calpers vote, Reuters, February 18, 2014

(7)  U.S. Census Bureau, California Local Government Payroll 2012, California State Government Payroll 2011

(8)  The data provided on the TransparentCalifornia website for LAFPP pensions is for 2012. This study used 2013 data, also received from LAFPP, but not yet posted.

(9)  Can San Jose cut pensions of current workers?, Cal Pensions, August 5, 2013

(10)  Los Angeles City Pension Costs Grew 25% Annually Over Last Decade, Public CEO, March 6, 2013

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About the Authors:

Robert Fellner is a researcher at the Nevada Policy Research Institute (NPRI) and joined the Institute in December 2013. Robert is currently working on the largest privately funded state and local government payroll and pensions records project in California history, TransparentCalifornia, a joint venture of the California Policy Center and NPRI. Robert has lived in Las Vegas since 2005 when he moved to Nevada to become a professional poker player. Robert has had a remarkably successfully poker career including two top 10 World Series of Poker finishes. Additionally, his economic analysis on the minimum wage law won first place in a 2011 essay contest hosted by George Mason University.

Ed Ring is the executive director for the California Policy Center. Previously, as a consultant and full-time employee primarily for start-up companies in the Silicon Valley, Ring has done financial accounting for over 20 years, and brings this expertise to his analysis and commentary on issues of public sector finance. Ring has an MBA in Finance from the University of Southern California, and a BA in Political Science from UC Davis.

San Jose's Public Safety Pensions – Reduce Now or Slash Later

“Once people get the facts, they do not support slashing people’s pensions.”
– Dave Low, chairman, Californians for Retirement Security (Washington Post, February 25, 2014)

Really?

Making sure “people get the facts” is difficult when most “facts” the public sees are promulgated to the media by pension fund PR departments eager to preserve the torrent of taxpayers money flowing into their favored investment firms, along with PR firms representing taxpayer-funded public sector unions whose primary reason to exist is to increase the wages and benefits of their members.

According to the most recent data available from the California State Controller – over $600 billion of taxpayer’s money is privately invested by public employee pension funds (Public Retirement Systems Annual Report, FYE 6-30-2011, released 5-22-2013, page xv, Figure 2), and every year, taxpayers pour another (woefully inadequate) $27 billion into these financially troubled funds (same report, page xxii, Figure 12).

As for the California’s public sector unions? It’s hard to get facts on these massive institutions whose operations – despite being 100% funded by taxpayers – are largely defined by their opacity. But just in California, their collective revenues per year from dues and agency fees can be reliably estimated at over $1.0 billion per year.

Those are two pretty big elephants in this room we call California, Mr. Low.

Chairman Low’s comment was quoted in an article entitled “In San Jose, generous pensions for city workers come at expense of nearly all else.” The focus of the article was the exodus of public safety personnel from San Jose, since their pensions have been “slashed” as the result of a reform initiative passed by nearly 70% of voters.

So what are the facts about public safety pensions in San Jose?

Getting these facts are also difficult, but earlier this week, the California Public Policy Center released a study entitled “Evaluating Public Safety Pensions in California,” with San Jose’s independent pension system one of those selected for analysis. The other two were the independent pension system serving public safety retirees from Los Angeles, and public safety retirees who participate in CalPERS.

As documented in this study, the average retired public safety employee in San Jose collects a pension considerably better than the average public safety retiree from Los Angeles, or the average public safety retiree who is part of the massive CalPERS system. Factoring in the length of service, and the year of retirement, take a look at these pensions:

City of San Jose Public Safety Retirees
Average Base Pension by 
Years of Service and Year of Retirement

20140404_Ring-Fellner_SJ-by-Svc-and-Ret

It is very important to note that these averages are just for “base pension.” In general, based on the data received from other pension systems who supplied the additional data, public safety retirees collect at least $10,000 per year in health benefits that are not considered part of their base pension, and San Jose is no exception (ref. SJ safety retiree health benefits). This means the average public safety retiree in San Jose, if they retired in the last ten years and worked 25 years or more, collects a pension and benefit package that averages over $110,000 per year.

These are the “facts,” Mr. Low. This is what voters decided to “slash,” although if you read Measure B, “slash” is not exactly the first thing that comes to mind. “Sanity” may be more appropriate.

The reader looking for additional “facts” may wish to click on this link, which points directly at individual pension amounts for the most recent fiscal year for which data is available: “San Jose Police and Fire Retirement Plan (2012).” For that matter, perhaps the factually minded reader may wish to click on this link, which points to how much individual public servants currently working for the City of San Jose made according to the most recent data: “All salaries for San Jose (2012).”

The observant viewer of these links to San Jose’s city employee pay and pension data will note, factually, that the vast majority of highly compensated individuals work in public safety. But what about the averages? What is the average total pay and employer-paid benefits for San Jose’s public servants? For that, refer to the next chart, taken from another California Policy Center study entitled “San Jose, California – City Employee Total Compensation Analysis,” using 2011 payroll data provided by the city itself:

20140415_RingUW_SJ-city-pay-2011

Lest anyone suspect that “averages” for pay – and the pensions whose value is calculated based on final rates of pay – are misleading because of a handful of overpaid executives, please note that median pay for San Jose’s public safety employees exceeds their average pay.

No reasonable person questions the need to pay public safety personnel a premium for the work they do. But to preserve defined benefits, not to mention the financial survival of our cities and counties, we must make tough decisions now, to avoid having to “slash” later.

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Ed Ring is the executive director of the California Policy Center