Opinion - September 23, 2011
Sharing the costs of a beleaguered pension system
Members of the Pleasanton City Council spent a few more hours Tuesday night in closed session discussing a new contract with the local firefighters union that expires shortly. It was another step the council is taking to sit together to review wages and benefits for municipal employees at a time when pension sustainability is becoming a major financial concern for cities throughout California.
Pleasanton's unfunded pension liability ranges from $290 million to $121 million depending on who is analyzing the municipal budget, with Finance Director Emily Wagner saying that the liability actually has been reduced by cost-cutting measures and other adjustments. Either way, those are big numbers and the council, Wagner and City Manager Nelson Fialho are considering measures to reduce the liability and to work with employee groups to pick up more of the costs. In recent years, the city has paid all of the costs of health care and pension for employees. That's now changing.
Recently, Fialho voluntarily agreed in a new contract to contribute 8% toward his pension. He also won an agreement from department managers to start contributing 4%. A new contract recently signed with the city employees union has them contributing 2% toward pension benefits, a rate that will go to 4% next July 1. Fialho, at the council's direction, has been negotiating a new contract with the police union that will be unveiled at the council's public meeting on Oct. 4. It is likely to contain the same provisions. At last Tuesday's meeting, labor consultants and the council weighed in on the firefighters union contract, which is nearing expiration. Those negotiations will be completed after the police union contract is signed. Last year, firefighters agreed to contribute 2% of their salaries for the first time; a larger percentage is no doubt on the negotiating table.
All California cities face a long-term challenge as pension costs continue to increase, threatening the delivery of basic public services, compromising general fund budgets, and indeed, posing a long-term fiscal challenge to the state itself. A former CalPERS pension system actuary has warned that by 2014 it will be common for local governments to budget 50% of a police officer's salary, 40% of a firefighter's salary and 25% of a miscellaneous employee's salary for their pensions, contributions that are fiscally unsustainable. Many cities already face 25% or more increases in pension contribution costs in the next three years and those rates are likely to remain high for a decade or more.
An analysis by the League of California Cities Employee Relations and Revenue and Taxation Policy Committee blames the causes of the problem on large losses in pension investments due to the recession, enhanced benefit formulas granted after 1999 by the governor and state Legislature, and the increasing lifespan of retired employees.
The Pleasanton council and the city manager, in formulating new labor contracts, have adopted the "principled approach" of the League of Cities. This states that the public retirement system should provide fair benefits for career employees. It means recognizing the value of attracting and retaining high-performing public employees to design and deliver vital public services to the community. It's a principled approach that recognizes that public pension costs going forward must be shared by employees and their employers, who, after all, are us, the taxpayers.
Posted by Arnold,
a resident of Another Pleasanton neighborhood
on Sep 26, 2011 at 4:06 pm
"As a Law Enforcement Officer, I would like to see an honest, "Pension" discussion.
The truth about what we pay into our pensions and what we make is far different from the picture painted by the media. I currently contribute $17,498.00 per year out of my paycheck towards my own pension and more than $500,000.00 since starting 27 years ago."
David, maybe you can prove me wrong, but I don't believe a word of that statement. If you're contributing 9% of pensionable salary, and your contribution is $17,498, then your persable compensation is $194,422 per year (that I believe but it is a separate issue - and it is an issue regarding fair compensation). So even if you worked 27 years at 194K and contributed 9% that only equates to 472k in contributions. I'm pretty sure you didn't start at 194K, 27 years ago (probably 25-30K with a 7% contribution), so your entire premise, "an honest, "Pension" discussion", is suspect at best.
"My employer gets to forgo their contribution any time the pension system exceeds it's earnings requirement. So during the 1990's, into the early 2000's anytime PERS exceeded 8% (13 out 20 years) the various cities and counties got a,"Payment Holiday"."
Under the CalPERS plan, member agencies do NOT have the option to take a pension holiday. Providing pension holidays is solely at the discretion of CalPERS, and the CalPERS BOD's. If an agency (TAXPAYERS) decided to forgo pension contributions they would be in default and have to pay the missed contribution payments, plus the 7.75% interest, plus administrative fees, and probably suffer a decline in their credit rating.
If the conversation is about the adverse effect of pension holidays then the finger needs to point at CaLPERS. And the finger should be pointed at CalPERS because they are the agency that promoted this nonsense (SB400), on the union's behalf, in an effort to get member agencies to distribute the extra funds (the money that represented the 32% of the 132% super funded status of the pension plan) to the public employee union members. The taxpayers were Madoff'd and are now left holding a bag filled with 200 million in IOU's, past off from city councils and city management teams, that must be paid to Pleasanton employee union members, for service that has already been consumed.
What is sad about this entire mess is the super funded status of CaLPERS would have automatically lowered the contribution rate of member agencies (taxpayers) for years. That is a CalPERS policy. Instead our elected officials at every level, many who benefit from the increased payouts either directly or in the form of campaign contributions for their support, the unions, city management employees that also benefited, and CalPERS have stuck it to the taxpayers in a big way.
"PERS currently has 1.1 million retirees, with an average pension check of $38,000 per year. Only 18,000 are collecting over $100,000.00 per year (all uppper managers), yet 100% of the conversation surrounds them?"
Upper management certainly gets their share, but it is Police & Fire employees that are burning down the fiscal house & robbing the bank!
David, maybe you work for a department under one of the Act 37 pension plans. Some of the worst abuses come from these out-of -control pension plans (see: every major city in CA, Contra Costa Conty, Santa Rosa, etc… CalPERS, which has limited the obvious abuses commonly attributed to ACT 37 plans, has found more subtle ways to abuse taxpayers with probably more devastating long-term consequences.
Posted by David,
a resident of Pleasanton Meadows
on Sep 27, 2011 at 9:32 am
Thanks for all the comments. I would like to address a s many as possible, but may miss a few. This is a far better discussion in person, since so many directions can be taken at once, and I have no way to answer all the what ifs.
As to my income and what I pay into my retirement. I Work for a 37 act county. Yes, many of the abuses that have led to the pension problem have come from those counties. My pay is $121,ooo per year and I pay $17,498.00 a year towards my pension. I do not make $194,000 like the previous writer thought.
PERS employee contribution is 9%, and the next year or so of negotiations will see every Agency move towards employees covering those costs. I do not have a problem with that. We pay about 15% towards ours.
I previously worked in Oakland, but after losing 13 friends from being murdered in the line of Duty, I left. I really don't think that I have robbed the tax payers as a previous writer has said.
I have not paid $17,498 a year for 27 years either, but as my income grew, so has my contribution. I have averaged $11,637.00 over those years, and if you do the math, I have contributed $314,199 of my income. add in compund interest at 7.75% and my personal contribution is worth $1,191,417.58.
I believe that a defined benefit is unsustainable because most of us are living longer and as it has been pointed out, many of us have far larger incomes than before. I would like to see a move to a defined contribution instead.
Right now if I die 3 years after I retire, my wife gets two options. Option 1: 50% of my pension if I pay $600 per month to an annuity. or option 2: $0 if I don't. Lets just do the math again.
If I contribute $300k and so does the County, then they save money, because their current contribution exceeds mine by nearly double. Using the same numbers I would have $2,394,000.00 in my own retirement account now. I could draw $185,000 a year if the interest return stayed the same, and when I died, leave wealth to my children.
The real problem is selling this concept to union and elected leaders. They like Defined benefits, because they are ignorant of the possibilities. Now there is always the possibility that returns are bad, and I lose some wealth, but I am willing to take that chance. I was also happy with 2%@50.
I am an anomoly mind you, but that is because I am pragmatic. My whole point is that there are solutions, and while all of them may be a little painful, they need to happen.
I do not like the written forum because so many contributers talk pretty big while typing, and say things they would never have the nerve to say in person.
There are a lot of Police Officers willing to make concessions and share the pain, but so few news papers share the fact that nearly every officer in California has begun paying their own contribution. The truth is; If we paid every ddime out of our own salary, it would not fix the budget. California mandates that $43 out of every $100 goes to K-12, then $11 out of every $100 goes to JC's -University. When you hear that we spend more on prisons and CHP than education, they are only talking about Universities. This is what I mean about truth. Law Enforcement expenses are not mandatory budget items, but education is. I am not saying that we should not pay for our benefits; Im saying we are only 9% of the states budget issue.