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Retiree with $183,690 Annual Pension Attacks Pension Critics

“Critics of public employee retirement benefits are engaging in hyperbole and pointing to potholes as evidence that millions of elderly Californians should be stripped of their retirement savings.”
Brian Rice, president, Sacramento Area Fire Fighters, Sacramento Bee, June 2, 2015

Notwithstanding the possibility that saying pension reformers want to see “millions of elderly Californians stripped of their retirement savings” is itself “hyperbole,” Brian Rice’s recent Sacramento Bee submission requires a detailed rebuttal. Rice’s piece, entitled “Pensions aren’t being paid at expense of filling potholes,” was in response to a study written by Stephen Eide and released by the Manhattan Institute entitled “California Crowd-Out, How Rising Retirement Benefit Costs Threaten Municipal Services,” published in April 2015.

Rice leads off by attempting to link the Manhattan Institute to the supposedly infamous Koch Bros., despite offering zero evidence that the Koch Brothers contribute to that organization. And, of course, he is relying on this unsubstantiated link to discredit Eide’s work, apparently because if the Koch’s funded the work, then the author had to come up with data and conclusions that fit their agenda, instead of the facts and logic.

We’ll get to facts and logic in a moment, but first it is necessary to consider Brian Rice’s agenda. Because there is virtually no comparison between California’s urban firefighters and the “working class,” “minority, low-income and rural communities,” to whom Rice makes reference in his article, and for whom unions are more legitimately challenged to represent. Brian Rice, who retired in 2011 after 28 years of service, collected a pension in 2013 of $183,690, NOT including other benefits which probably add at least another $10,000 to his total retirement package.

Here’s pension data for Brian Rice. Notice how during retirement his pension still increases each year.

Here’s pension data for Rice and his fellow retirees from Sac Metro Fire – and Rice isn’t even in the top ten. The top spot is held by James Eastman, who collected a modest pension of $231,428 in 2013.

Rice writes: “Public employees have traded off other compensation in order to have a secure retirement.”

Really? Here’s payroll and benefits data for Sac Metro Fire’s active employees. Eleven employees made over $300,000 in 2013, 195 made over $200,000 in 2013, and 408 made over $150,000 in 2013. The Sacramento Bee recently published an analysis of average pay, not including benefits, for Sacramento firefighters. The data shows the average firefighter makes $122,677 per year, NOT including current benefits such as health insurance, and not including the employer’s pension contribution. Add those and the average goes up to $194,083. And no, that average does NOT include captains, who average $163,040 before benefits.

Quite a trade off. Modest pay in return for a secure pension. No hidden agenda there, right? No motive to engage in “hyperbole” when you encounter critics?

Back to potholes. A California Policy Center study published in February 2015, “California City Pension Burdens,” documents the average employer pension contribution for California cities in 2013 at 7% of total revenue. CalPERS is increasing their required pension contribution by 50%, meaning the average will become over 10% of total revenue. And that assumes the markets don’t correct downwards. Many cities are in far worse shape. Is it really necessary for 10% of every dollar in local tax revenue go to pay pensions that average over $100,000 per year for public safety employees who retire early and whose pensions get annual cost-of-living increases?

The “crowding out” effect is real, and it affects more than potholes. Rice is perhaps at his most hyperbolic when he writes “each year, the $13 billion that much-maligned CalPERS pays Californians in pension payments creates $30.4 billion in economic activity. The California Public Employees’ Retirement System also invests in big infrastructure projects for the state, and makes capital available to minority, low-income and rural communities.”

Bull. Bull. And Bull. To wit:

(1) The $13 billion creating $30.4 billion in economic activity is known as a “multiplier.” As Rice puts it, “They spend it on housing, food, gasoline, other necessities, gifts for the grandkids and more – which drives economic activity, creates jobs and increases tax revenues.” We hate to break it to you, Mr. Rice, but if we had been able to keep that money, instead of paying higher taxes so you can have your $183,690 per year pension, we would have also been able to “spend it on housing, food, gasoline,” etc. No net benefit there.

(2) Rice claims $13 billion is paid out annually by CalPERS to pensioners. Actually last year it was $17.7 billion (ref. CalPERS CAFR 6-30-2014, page 24). But Rice neglects to mention that 15% of those pensioners have moved out of California. And Rice ignores the other side of the equation, which is that based on their asset allocation to-date, 91% of the $12.6 billion paid into CalPERS last year was invested out-of-state. CalPERS has $301 billion in assets, and ninety-one percent of that money is invested out-of-state. As it stands today, California’s citizens, their cities, and the overall economy would be a lot better off if CalPERS, and every other pension system in California, did not exist.

(3) When it comes to infrastructure, not only is CalPERS investing a ridiculously minute portion of their portfolio, but the primary reason there isn’t money for infrastructure is because cities, counties, and the state are too busy allocating all of their financial resources to overcompensated public employees. And if CalPERS and the other pension systems were willing to invest for reasonable rates of return, instead of speculating on global markets, they could take their roughly $700 billion in assets and finance revenue producing civil infrastructure such as dams, upgraded water treatment to allow reuse of waste water, desalination plants, aqueduct upgrades, port expansions, road and freeway upgrades, bridge repair – the list is endless.

Despite Mr. Rice’s hyperbole, most pension reformers do not want to abolish defined benefit pensions for public employees, if these pensions could be made fair and financially sustainable. That would require returning to the conservative investment guidelines in place until Prop. 21 was passed in 1984, and it would require returning to the modest and fair benefit formulas that were in place until SB 400 was passed in 1999. Taking these steps would not only save defined benefit pensions, but enable massive investment by the pension systems in revenue producing civil infrastructure.

There’s a lot of middle ground between someone collecting a pension of $183,690 per year, and being “stripped of their retirement savings,” Mr. Rice.

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

San Diego Police Losing Officers To Lucrative Retirements, Not Other Departments

Editor’s Note:  The following article addresses an ongoing debate:  Are local police departments in California where pension reforms have been enacted, San Diego and San Jose in particular, losing officers and new hires faster than they can replace them because of these reforms? Readers of this article are encouraged to also read the response posted on the San Diego Police Officers Association’s Facebook page, along with this tweet, and this tweet, posted in response by a VP for the San Diego Police Officers Association. Debates over the facts, assumptions, and moral issues envelop literally every facet of public sector compensation and benefits, but a few things should stand out. For example, San Diego is paying pensions to its retirees with 25 years or more of service that are significantly more than they are paying in base salary to their active officers and detectives. There’s something wrong with that picture, whether or not the pension fund is adequately funded – it is not – and whether or not, overall, San Diego’s active police officers are underpaid.

Over the past several months, San Diego media outlets have issued a flurry of news reports asserting that San Diego police officers are underpaid and that this is “why the department is losing officers.”

There’s just one problem. The facts don’t support this narrative.

Yes, 162 San Diego police officers left the force in Fiscal Year 2014, but only a handful went on to other departments. Additionally, 160 new hires were made, resulting in a net loss of two officers in a force of 1,836.

Of the 162 who left, only 17 — or just 10 percent — left the San Diego PD for another police force. 90 percent of those who left did so for retirement, medical retirement or miscellaneous reasons.  Last year, San Diego lost less than 1 percent of its officers to other agencies.

20150109_Fellner_SDPD-1b

The main driver of attrition is found in what is waiting for police officers in retirement – DROP payments that can top $500,000 and ongoing retirement payouts that are often higher than their current base pay.

According to Transparent California, in 2013, the average San Diego police officer retiree who had at least 25 years of service credit prior to retirement received an annual pension benefit of $94,425. This excludes chiefs and assistant chiefs, which would raise the average further. The average years of service for these retirees was only 28.78, suggesting that many police officers take advantage of the ability to retire as young as 50 and still receive their maximum pension benefits.

A further breakdown of this data by job title provides even more insight into why so many police officers are retiring from the SDPD. In the City’s study claiming its police officers are underpaid, it reported the average base pay for a SDPD “Police Officer I or II” to be $62,598. The average pension for retired Police Officer I or II was $76,586 in 2013, or over 20 percent more than the average salary.

A similar comparison for the positions of detective, lieutenant, and captain shows that pensions are routinely higher than average base pay.

20150109_Fellner_SDPD-2a

Part of the popular narrative is correct: Police officers are leaving the San Diego Police Department for higher pay. It’s just that they’re finding that higher pay in retirement, not in competing departments.

The U-T San Diego reported that half of San Diego police officers will be eligible for retirement by 2017. Should the SDPD find themselves facing a legitimate staffing crisis at that time, it will be because of a system that offers virtually no incentive for an officer to continue working past the age of 50, not the allure of higher paying jobs elsewhere.

Increasing pensionable compensation for current officers — something the city is considering to keep officers from leaving — will only compound the problem.

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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.