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Is Deficient Recruiting the Real Reason for Police Understaffing in San Diego?

Whenever there is a shortage of police personnel in a California city, a common reason cited is inadequate pay. When officers at a particular agency are paid less than their counterparts at some other agency, so the theory goes, they quit in order to start working where they can make more. This seems to be sound logic. But is it supported by facts?

According to a new study “Analysis of the Reasons for San Diego Police Department Employee Departures,” released last week by the California Policy Center, the answer to that question is a resounding “no.” Authored by Robert Fellner, research director for the Transparent California project, the study’s findings contradicted the conventional wisdom. They were:

  • Claims that SDPD officers were leaving to join other departments misrepresented the data on attrition, by focusing on the 10% who left to join other departments, instead of the 60% who retired.
  • These claims also misrepresented the overall data regarding staffing and recruitment, focusing on approximately 20 people leaving in a department of nearly 1,800 while ignoring the fact that there were 3,000 applicants for open 25 positions.
  • In support of these claims, a misleading study, funded by the city of San Diego, only analyzed base pay, the only category of pay San Diego didn’t boost in their 2014 pay raises for the SDPD.
  • This same study compared San Diego to one of the most expensive cities in the world – San Francisco and other totally different markets, instead of comparing SDPD pay to rates of pay in neighboring cities.

One thing that is not in serious debate is the fact that the San Diego Police Department is understaffed, like many other police departments in California. But the reason they are understaffed is a result of poor recruitment efforts. Fellner writes:

“The City’s ability to recruit new candidates would be seriously compromised when budget decisions in FY 2009 and FY 2010 resulted in the City cutting its quarterly academy class sizes from 50 to 25. In FY 2011 the City cancelled all but one academy class, a decision that ‘resulted in a lost opportunity to add approximately 57 additional recruits.’

And what did happen after the hiring freeze of 2011 ended? The SDPD received over 3,000 applicants for just 25 positions in its first academy class of 2012, according to 10News. This is symptomatic of a larger trend – a tremendous, unmet demand to work in law enforcement in the San Diego area. For example, the following year the nearby San Diego County Sheriff’s Department received over 4,000 applicants for their 275 deputy positions.”

There is no shortage of people who want to work in law enforcement in San Diego. Surely a few hundred of these many thousands of applicants are qualified to do the work.

While the facts don’t support the assertion that San Diego is losing police officers to other departments, the facts do support an alarming loss of officers to retirement, a problem that is getting worse. But if recruitment isn’t a problem, what difference does it make if officers retire in great numbers?

The problem is the cost for these retirements take away funds that could be used to pay for more police academy classes, and more active officers on the force. To fund an adequately staffed police force, San Diego could have reduced retirement formulas to the levels they were back in the 1990’s – i.e., reducing them back to levels that are fair and financially sustainable. Instead, to induce veteran officers to delay retiring, San Diego joined several other California cities in implementing “DROP,” which stands for “Deferred Retirement Option Program.”

In general, the way DROP works is this:  A retirement eligible employee agrees to freeze their retirement benefit accrual and continue to work, usually for five more years. Then, while they continue to work for the city and get paid as an active employee, the pension they would be earning if they had retired is paid into an interest bearing account. When they retire, the entire amount accrued in that pension account is paid to them in a lump sum, and from then on they begin to directly collect their pension.

Take a look at Transparent California’s listing of San Diego’s pension payouts in 2013. Nearly all of the top pensions are police and fire personnel who received massive lump sum payments under the DROP program. This is a scandalous waste of money. The primary reason SDPD officers leave their department is to retire. So instead of investing in recruitment and training efforts to replace retirees, the San Diego implemented the DROP program, at staggering expense, to retain veterans a little longer.

As always, the power behind these distortions of logic and perversions of policy are the government unions. Unlike the police officers themselves, who almost invariably want to serve their communities and make a positive difference in people’s lives, government unions thrive on fomenting resentment and alienation. The more anger they can manipulate their members into feeling, the more righteous indignation those members will bring to city council meetings, and the more dues they will willingly pay to purchase candidates for local office. Ultimately, what government unions thrive on is the failure of government, because the worse things get, the more money they will demand to fix the problems.

Inadequate pay is not the reason SDPD has a staffing shortage. Excessive pensions, the staggering expense of DROP, and a failure to fund recruitment efforts are the reasons why. The unions would have you think otherwise.

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

Analysis of the Reasons for San Diego Police Department Employee Departures

Summary:  The San Diego Police Officers Association and, to some degree, the San Diego media has long held that low pay was a significant factor in the department’s attrition rate that required pay increases to solve. A recent City-commission study that found the SDPD’s compensation (base pay range + cost of benefits) was near the bottom of the cities surveyed has prompted widespread support for further pay increases for the SDPD.

A review of all available data demonstrates that the attrition rate for the SDPD is overwhelmingly driven by retirement, not officers leaving for other agencies. In fact, the rate of officers leaving for other agencies in the past five years has dramatically declined from the prior five year period and has never represented as much as 1% of the total force in any given year. In the two most recent years, 2013 and 2014, retirement accounted for 60% of the total attrition rate and officers leaving for other agencies accounted for only 10%.

Moreover, the staffing shortfall itself would have been entirely avoided had the City not cancelled or greatly reduced the number of budgeted new recruits to hire over the past ten years.

Further, we find a pair of serious issues with the City-funded salary survey. First, the survey incorporates cities from entirely different markets, such as the Bay Area, LA-area, etc. many of which, such as San Francisco, have dramatically higher costs of living and higher rates of public pay in general. After restricting the comparison to only those cities within San Diego County, the pay disparity found is greatly reduced.

Additionally, the City passed a series of non-pensionable pay raises beginning in FY2014 which are not captured in the study’s analysis of base pay ranges. Consequently, the pay disparity reported is overstated.

Finally, we look at the theory arguing for an increase in public pay to match those of nearby agencies with higher level of pay and find it severely misguided. When job openings for 25 positions are met with over 3,000 applicants, implementing agency-wide pay raises in an attempt to retain the less than 1% who depart for other agencies in any given year is not merely ineffective, it is fiscally irresponsible.

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“The San Diego Police Department is woefully understaffed and has clearly shown, over an extended period of time, it cannot correct its staffing crisis without increasing the compensation of sworn police officers and recruits.”
– Jeffrey T. Jordan, VP, San Diego Police Officers Association

On the contrary, the San Diego Police Department’s (SDPD) current staffing shortfall is the result of repeated City decisions that have prevented thousands of prospective recruits who wish to serve from doing so.

Presently, the department is short approximately 250 officers from its 2018 targeted goal of 2,128 budgeted sworn staffing positions.

This shortfall, rather than being caused by uncompetitive salaries that are insufficient to attract or retain officers, is the result of events that demonstrate just the opposite — the City stopped or greatly reduced hiring in the face of thousands of prospective recruits willing to join. Specifically, the City cancelled or reduced scheduled academy classes that would have otherwise brought in over 400 new officers since 2004, more than enough to completely alleviate the current shortfall.

The City’s Independent Budget Analyst Office (IBA) reported that during 2004 and 2005 the City canceled five budgeted academy classes which “could have resulted in an infusion of 150-175+ new recruits.”

In retrospect, this cancellation could not have occurred at a worse time. The City would experience a higher-than-expected attrition rate in the coming years — driven predominantly by officers leaving for retirement.

In 2007, the IBA warned that 251 officers would take advantage of the Deferred Retirement Option Plan (DROP) in the next five years and that retirement would be the largest component of officer attrition going forward. They further advised that It could take 3-5 years to return to more typical sworn staffing levels. This will depend largely on the City’s ability and efforts to recruit new qualified candidates.” (Emphasis added.)

Unfortunately, the City’s ability to recruit new candidates would be seriously compromised when budget decisions in FY2009 and FY2010 resulted in the City cutting its quarterly academy class sizes from 50 to 25. In FY2011 the City cancelled all but one academy class, a decision that “resulted in a lost opportunity to add approximately 57 additional recruits.”

And what did happen after the hiring freeze of 2011 ended? The SDPD received over 3,000 applicants for just 25 positions in its first academy class of 2012, according to 10News.  This is symptomatic of a larger trend – a tremendous, unmet demand to work in law enforcement in the San Diego area. For example, the following year the nearby San Diego County Sheriff’s Department received over 4,000 applicants for their 275 deputy positions.

Further, when the City authorized increasing the academy class size to 43 in FY2015, the first class easily reached capacity, with 41 new recruits and an additional five officers who are leaving other agencies to come work for the SDPD. (Classes are authorized to accept slightly more than the budgeted amount of 43 to accommodate for potential drop-outs.) With four classes scheduled for the year, up to 172 new recruits could be added by close of FY2015.

THE DATA

An analysis of the data does not support the assertion that officers leaving the San Diego Police Department to work at other agencies is the primary cause of the staffing shortfall.

Despite an abundance of prospective recruits eager to work for the SDPD at current compensation levels, the union has seized upon the current shortfall as an opportunity to lobby for higher wages. The union has long stated (as far back as 1985) that paying salaries less than competing agencies will result in a high rate of attrition as SDPD officers leave for greener pastures elsewhere.

Yet recent data reveals this is simply not true. Over the last five years, the SDPD lost an average of 103 police officers a year, with only 13 a year going to other agencies. Even assuming that all officers leaving for other agencies left for higher pay, this represents only a small minority of SDPD departures, and less than 1 percent of the entire force lost to other agencies per year.

Recent increases in the overall attrition rate is overwhelmingly driven by an increase in retirement — in both 2013 and 2014 retirement accounted for 60 percent of the attrition rate, with officers leaving for other agencies accounting for only 10 percent of departures.

The San Diego County Sheriff’s Department is frequently cited by the union as a potential poacher for underpaid SDPD officers. Yet the Sheriff’s attrition data says otherwise. Since 2010, only a total of 17 SDPD officers transferred to the Sheriff’s Department, with 11 arriving in 2014. However, the Sheriff’s Department itself lost 16 officers to other agencies in both 2013 and 2014. This would suggest that the SDPD’s recent attrition rates are not the result of an SDPD-specific crisis, but are in line with similar agencies of their size and region.

Nonetheless, the City implemented an officer retention program beginning in 2014 that authorized a seven percent raise in non-pensionable pay over the next five years for all sworn officers.

Additionally, the City expanded its officer retention program in 2015 with a $3.2 million expenditure for increased overtime pay. Despite this, a recent study comparing SDPD compensation with other California agencies has prompted everyone from the union to the Mayor to call for further pay increases.

Notably, the summary findings from the study compares base pay ranges only, which omits the 7 percent salary increase in non-pensionable pay and additional overtime authorized for the SDPD beginning in FY2014. It thus overstates the pay disparity reported.

Further, the study’s surveyed employers include cities from entirely different markets, such as San Francisco, Oakland, and San Jose. In addition to being located in opposite ends of the State, the Bay Area cities have dramatically higher costs of living than San Diego. Consequently, the average salaries of all government employees in these cities, not just police officers, are significantly higher than those found in San Diego or the San Diego area generally.

A more meaningful comparison would be restricted to competing agencies in the San Diego area only; doing so greatly reduces the pay disparity found.

San Diego Police Department
Base Pay Midpoint as Percent of Market Average by Job Title

20150114-CPC_Fellner_SDPD-1a

The study reported that the SDPD’s base pay midpoint ranged from 78% to 90% of the “market” average, as represented by the blue bar in the chart above, with the “market” defined as the 19 statewide employers surveyed. However, if the comparison is restricted to the six cities located within San Diego County plus the San Diego County’s Sheriff Department, the SDPD’s base pay ranges from 84% to 98% of the average.

THE THEORY

Flawed logic underlies the theory that pay parity is essential to retaining trained police officers.

Even if the current staffing shortfall is not caused by low pay and even if officers going to other agencies are a much smaller component of attrition than retirement, should not SDPD salaries be increased to parity with nearby, competing agencies?

Two factors are important when considering this question. The first is that such a salary policy would guarantee ever-increasing levels of public pay and taxation. It would entail every agency presently paying “below market” rates increasing its pay to the higher rates paid by other agencies, which in turn will now use that level as its salary baseline, which the follower-agencies would then seek to match, and so on and so forth.

Additionally, the argument assumes that competing agencies are capable of absorbing any and all lower-paid police officers. There are, however, only a finite number of positions at competing agencies. So the idea that any imbalance in pay would result in a mass exodus from one agency to the other is simply not plausible.

Decisions whether salary levels are adequate should be based on whether or not sufficient talent is being attracted, and subsequently retained, at current salary levels. We have seen the SDPD has no trouble attracting an excess of applicants and recruits, when the city chooses that course. Additionally, the number of officers leaving for other agencies has been extremely modest over the past five years, never representing even 1 percent of the force in any given year.

The first half of FY2015 data does project that 24 of this year’s projected 136 departures will leave for other agencies. This mild uptick is likely attributable to the recent increase in hiring authorized by the Sheriff’s Department and other agencies that are seeing their budgets return to pre-recession levels. As noted above, this pull is not something perpetual that can go on indefinitely.

Even in an abnormally higher year, the number of officers leaving for other agencies is a small fraction of the total attrition rate, and represents a mere 1.3 percent of the total force. Is it really appropriate to implement agency-wide pay raises for such a small minority, particularly when thousands of willing applicants want to join the ranks at current pay levels?

CONCLUSION

With half of the force eligible for retirement by 2017, it is likely the attrition rate will continue to grow in the coming years.

To address its staffing shortfall without creating an unnecessary additional burden on taxpayers, the City has several options. It can:

  1. Maintain or modestly expand academy class size while continuing to focus on improving recruitment methods.
  2. Prioritize the importance of recruitment to avoid eliminating or reducing academy classes in future years.
  3. Reform pensions to encourage the most experienced and valued officers to stay past the average SDCERS Safety retirement age of 51. A change to pension formulas that would allow for maximum benefits to be received at 55, instead of 50, would help. Benefits could still be available as young as 50, but on a sliding penalty scale similar to what Social Security employs.
  4. Consider implementing service contracts for new recruits that incentivize them to stay with the SDPD for a set period of time.

In sum, the current shortfall is predominantly caused by two features: an artificial restriction on the supply of available labor and an abnormally high rate of retirement incentivized by lucrative pensions that average $94,425 a year.

Ironically, not only will an increase in pensionable compensation fail to address the true cause of the problem, it will further exacerbate the city’s primary cause of attrition – retirement – by increasing the average pension and corresponding incentive to retire early.

The claim that the SDPD’s staffing shortfall was created because of low pay contradicts all available evidence. Policies based on this claim will not only fail to address the source of the problem, but also create an unnecessary financial burden for the City and its taxpayers.

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About the Author:  Robert Fellner is Research Director for TransparentCalifornia.com, a joint project of the California Policy Center and the Nevada Policy Research Institute.

Transparent California Releases 2013 Payroll and Pension Data

Today, the California Policy Center (CPC) released 2013 payroll and pension data (the most recent data available) on TransparentCalifornia.com, the largest ever online database of California state and local government employee pensions, salaries, and benefits. The data shows that public compensation in California is growing more out of control, threatening the solvency of the state and local governments.

This new 2013 data includes pension data from the big state pension systems and payroll data from state agencies, counties, the CalState system, and community colleges. It shows egregious examples of misplaced taxpayer funds. Most notably, one assistant fire chief with the Los Angeles Fire Department earned a pension payout of $998,456. On the payroll side, the Alameda County Administrator made $654,000 in total compensation in 2013, while her assistant made $338,000.

For anyone who wants to view – and download – information from the most comprehensive collection of pay, benefit, and pension data ever compiled for California’s state and local government workers, here are some key links:

All Data: http://transparentcalifornia.com

Payroll Data – by Agency: http://transparentcalifornia.com/agencies/salaries/

Pension Data – by Pension System: http://transparentcalifornia.com/agencies/pensions/

CalSTRS Pension Data – by Employer: http://transparentcalifornia.com/pensions/calstrs/employers/

CalPERS Pension Data – by Employer: http://transparentcalifornia.com/pensions/calpers/employers/

And here are some highlights of inflated 2013 payroll and pensions data compiled using data from Transparent California:

PAYROLL

  • Alameda County Administrator made $654,000 in total compensation.
  • San Bernardino and Los Angeles County CEOs made $500,000 in total compensation.
  • Sacramento and San Diego County CEOs made $370,000 and $394,000 respectively in total compensation.

PENSIONS – CalSTRS

  • 8,437 retirees took home six-figure pension payouts.
  • 730 collected at least $150,000.
  • 54 made more than $200,000.
  • One recipient collected $240,900, while another had a total pension payout of over $215,000.

PENSIONS – Los Angeles Fire and Policy Protection System

  • An Assistant Chief received a total pension payout of $998,456, which includes benefits and a lump sum DROP payment of $839,345.
  • Including DROP payouts, 85 retirees received total pensions exceeding a half-million dollars, while 12 of those retirees took home over $700,000 each.

PENSIONS – San Diego City Employees’ Retirement System (SDCERS)

  • A Police Captain received a total pension of $785,679 (this probably includes a DROP payout, but the data is not broken out).
  • 5 retirees in San Diego City Pension system received over $700,000 in 2013. 8 total over $600K and 13 total over $500K. 40 over $300K. (This probably include DROP payments, but thay are not broken out.

PENSIONS – Orange County

  • 13 retirees collected pensions valued at over $200,000 per year.
  • 148 retirees have a pension of 100% or more of their final salary.
  • 821 have a pension of 90% or more of their final salary.

These so-called “DROP” payments are lump sums paid when employees retire. This benefit is frequently offered to public safety retirees, although not all jurisdictions make it available. Where available, it is granted when a government employee who is, say, 50 years old and eligible to retire, instead opts to continue working. While continuing to work – and getting paid – because they had already become eligible to collect a pension, the amount they would have gotten as a pension is paid into a savings account on their behalf, bearing 5% per year interest. When they retire, they begin collecting an ongoing pension but also get paid 100% of the proceeds of these accumulated DROP savings. “DROP” stands for “deferred retirement option plan,” but in plain English it might be called “double dipping.” The taxpayer pays for all of this, of course.

Million dollar pensions are just the latest example of California’s lavish pension system paid for by overburdened California taxpayers. Meanwhile, essential services are squeezed, civic bankruptcies continue, and income inequality increases.

Due in large part to these exorbitant pensions, California state and local governments are facing an estimated $655 billion in unfunded pension and healthcare liabilities. This shortfall in contrast to the number of state employees and pensioners receiving half million dollar payouts or more from the taxpayer highlights the need for public sector compensation reform. This shortfall also puts the recent declarations of “budget surpluses” by many of our state legislators into proper perspective.

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Mark Bucher is the president of the California Policy Center

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.