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Here’s one of the main problems with Sonoma County’s soaring pensions. Just about all of the decision-makers benefit from the same pensions they set for the union employees and others. All five members of the Board of Supervisors are on the same retirement plan. Eight of the ten members of the Sonoma County Employees’ Retirement Association (SCERA) are former or current county employees. So who represents the public’s interests?
Remember, it’s the taxpayers who are primarily on the hook to make up the difference when pension investments collapse. The result is more taxpayer funds are invested in retirement benefits and more services are cut.
Here’s an editorial we wrote in today’s Press Democrat calling on the Board of Supervisors to create an independent committee, made up of members of the public who do not benefit from the pension system, to evaluate the current pension system and make recommendations on how it needs to be changed.
- Paul Gullixson
PD Editorial: Pensions are an insider’s game to play
So how did we get here? How did we end up in a place where Sonoma County is mired in budget shortfalls and debt while some of its top employees are walking out the door with pensions better than what’s given the president of the United States?
We’re still trying to figure this out ourselves. The reasons are numerous and complex — and the county has not been forthcoming with all the information we need to fully examine this issue.
Suffice it to say, it’s taken years to get to where we are, saddled with overly generous retirement packages and Byzantine rules that, if worked correctly, allow employees to pad their earnings to end up with pensions equal to 120 percent or more of their final salaries.
It has been an insiders’ game, and before now, the public really didn’t know what the rules were, let alone who the winners are. But with the court-ordered release of precise pension information last week, the numbers are now on the table. And, as we’ve noted, they’re staggering. More than 100 retirees receive in excess of $100,000, including 29 who receive more than $140,000 a year.
Not only are the rules obscure, those who make the rules all have skin in the game. Unlike those on a city council who, by and large, work on a voluntary basis, the five members of the Board of Supervisors are full-time employees who stand to benefit from the same retirement perks as other employees.
Meanwhile, of the 10 trustees of the Sonoma County Employees’ Retirement System, eight are current or former county employees. One, retired County Administrator Mike Chrystal, takes home the third highest of all pensions in the county — $209,862 a year. (By comparison, retired U.S. presidents receive a pension of $196,700 a year.)
This leaves us asking, who’s representing the public in all of this? After all, when pension investments tank, as they have in recent years, it’s the taxpayers who primarily are on the hook to ensure retirees get the benefits they were promised. For the record, we don’t believe, and there’s no evidence to suggest, that any elected official or department head has done anything nefarious. Sonoma County has benefited from the devoted service of many outstanding public employees, including those listed among the top pensioners.
At the same time, we believe it’s time the Board of Supervisors create a citizens’ committee composed entirely, or at least predominantly, of people who do not benefit directly from the retirement system. This panel should look at the county’s retirement system, not just in the context of how it compares to other counties but how it stands on its own merits and whether it is sustainable.
This panel also should do an independent analysis of the decision to float $290 million more in pension bonds last year, a move that essentially allowed the county to put its unfunded pension liability on a credit card. Was it a good risk? Given the recent plunge in the stock market and the fact those bonds need to average a return of 8percent a year for the next 20 years, we have our doubts.
But we believe it’s time that supervisors hear more from the public on this issue. Because odds are, if they don’t listen now, they’ll hear it later at the ballot box.
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In setting pensions, is the public represented at the table?
Only by the fact that the public has it’s money on the table with no control over how it’s spent.
The questions to be asked….. who is on SCERA’s board, and why?
http://www.scretire.com/about.htm
Spiking pensions is wrong, but it’s more politically embarrassing than financially significant.
As to employees retiring as soon as they reach the maximum benefit, that won’t be a problem if the minimum age and years of service required are properly set.
In any case, we must face the fact that the assumed rate of return, which justified the high benefits, depends on the fund taking risks traditionally thought inappropriate for pension funds. The current shock is a painful wake-up call.
@James – Maybe they could, but that is not how it is done now. I lost 50% of my 401k, thank you very much.
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@GAJ – 50%? With or without social security? Many public employees do not get SS…
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@Reality – the abuses that I would fix? Letting department heads at the County spike their pension by getting raises right before retirement and/or getting a bunch of payoffs when they retire that become part of the pension calculation. I also beleive that employers should be making the “employer” contribution regardless of how “super-funded” the retirement plan appears to be – that is how we got into our current mess – neither the County or the City was making payments towards retirement for a number of years. If an agency decides to offer an improved benefit, then they should be required to pay a lump sum to cover the cost of that benefit for employees that are getting close to retirement, but who’ve never paid for that benefit. When Santa Rosa miscellaneous employees asked for a the better retirement that EVERYONE else was getting, the City said fine, but you’ve got to pay for it, and those employees ended up losing 8% of their salary, and had to raise their retirement deduction from 7% to 8%. They did not however require anything from those employees just about to retire. They got the added retirement benefit without having to pay anything extra. This was a case where upper management convinced the unions to push for the higher benefit, but it was those upper management folks just about to retire that made out. The rest of us are paying for our added benefit. Believe you me, I would much rather have the additional 9% of salary that I’ve lost than some future pension upgrade.
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Done properly, a defined benefit pension is a pay-as-you-go plan. Employee and Employer contribute to whatever plan is chosen (3% at 60, etc). Total contributions plus return on investment is set by actuarials to amass enough money by the time an employee retires to pay that person’s retirement going forward. If a person works longer, then their retirement goes up – makes sense, since a person will receive that retirement for a shorter period. You can cap retirement to be 100% (or whatever), but it will not save money, since the employee will just retire when they’ve reached maximum benefit, and the agency will lose a productive employee and will pay out retirement over a longer period.
I’m not sure what “abuses need to be fixed” means.
The worst abuse I see is not the percentage in which a 35-year employee can retire (105%+), but that the system isn’t adequately funded. Rod Dole’s pension isn’t paid for. Not even close.
While I doubt the public will long support pensions that exceed salaries, the assumptions made to justify them is worse.
If the S&P500 Index is a proxy for SCERA’s likely returns, YTD the fund is now likely negative. This means taxpayers will need to make up the shortfall from the expected return rate of 7.75% while paying an additional near 6% for the bonds they floated to close the shortfall. And unless one puts on rose colored glasses, near term returns aren’t likely to cover the bond costs.
Can anyone doubt why taxpayers, at least those paying attention, are angry?
A Pension Plan that pays you 50% of your pay when you retire is very very generous.
Anything above that is beyond ridiculous.
Actually paying people MORE in retirement than while actually working is completely and utterly insane and those that foisted this on the Public are corrupt and have obviously placed their own needs over those of the public they were hired on to serve.
The fact that Rod Dole, (our financial watchdog at the County level), is the most egregious example should be investigated.
@Lets be Reasonable
You said: “It is more efficient to have large retirement funds managed by their own experts than for each of us to have to pay someone to manage our own little portfolios.”
Under defined contributions, the same funds as today can manage the money, it does not have to be individaul accounts, it simply means that the taxpayer is not on the hook for an unlimited liability if the “experts” managing the fund achieve poor returns. I am all for retirment savings for government employees, but not the kind of gaming the system that is happening to extort unreasonable >$100k/yr pensions from the taxpayers.
As I’ve said before, the abuses need to be fixed, but I disagree with those who say that public pensions should be converted to a 401k type of plan. Folks say that they have to take their chances in the market with their 401k’s, so public employees should too. Social Security is a defined benefit plan, and almost every American in the private sector gets that. We already had the debate about turning SS into a 401k type of program, and the public said no way. I’m not an investment expert, and frankly, I don’t want to have to pay one to manage my retirement (of course, it is just these “experts” who are trying to get these defined benefit plans abolished!). It is more efficient to have large retirement funds managed by their own experts than for each of us to have to pay someone to manage our own little portfolios. Defined benefit plans are also cheaper than equivalent 401k plans. Sure, get rid of the abuses, and adjust benefits if need be, but converting to a 401k defined contribution plan would be a mistake.
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http://www.cbpp.org/cms/?fa=view&id=3492
Though the idea of eliminating pensions is the answer, one I have suggested many times, we have to live in reality. Unfortunately for us taxpayers, we have no power. There are two major problems with the system…(1) The unions control the politicians through campaign contributions (i.e. back-door bribes) and we end up holding the bill. (2) the Sheeple are too stupid and too easily manipulated into thinking that one side (Republcon-artists) are anti “worker” while the other side is pro “worker”. This makes the Sheeple voters consistently re-elect the party that is in bed with the unions.
Call me whatever you’d like but look at the political structure in CA. One party dominates, one party continues to get re-elected, even though their approval rating is in the single digits.
So, all we can do is find someone who has mastered the tax code and lower our tax bills to something so small that it doesn’t make you lose sleep knowing that your tax dollars are paying the absurd salary of a government worker, and most likely, the two prior people who held the same position via a pension.
Sad.
Socialism is always an insider’s game.
What is most telling about this pension mess is the players who just started collecting and held major positions in our county government.
Namely, the sheriff and the others.
That tells a story that needs to be told in criminal court.
Will the current responsible players let us hear that in court?
There is a lot of money on the table.
If Sonoma County pension levels are where they are because the BOS receives the same benefit, then how do you explain the fact that virtually every city and special district in Sonoma County have the same benefit and actually require a lesser contribution from it’s members let’s use some critical thinking shall we.
if you give people the power to vote their own pay and retirement bonuses, they will abuse it. Here, the county gave itself the power to control the retirement packages. The decisions were made with the knowledge that it wouldn’t work. That isn’t just making a mistake, it’s defrauding the public, and thus is criminal. The county made up arcane rules to give a substantially higher retirement than was actually EARNED. That is also a fraud and criminal. The public had no control and when trying to find out, they were shut out. The thieves knew they were thieves. IT’S CRIMINAL and just because it isn’t as big as Bell, it doesn’t mean that it should be dismissed. Where is the county grand jury now.
The answer is NO! No to the current ponzi pension scheme. No to the Board of Stupidvisors being members if the pension plan. No to the outragious pension benefits currently being offered.
The county needs to move to a 401k type plan for county employees if they can afford a pension plan at all. Get them out of a failed pension plan into one where the employees can contribute to the plan just as they do in the private sector.
It is time government pensions mirrored private sector pensions.
“But we believe it’s time that supervisors hear more from the public on this issue. Because odds are, if they don’t listen now, they’ll hear it later at the ballot box.”
They’ll probably hear it soon from the credit rating agencies and from investors in Sonoma County municipal debt….tick tock..
The problem with these damn pension obligation bonds, is the taxpayers guarantee a rate of return for All funded and unfunded liability of 7.75%. With what appears to be a ZERO rate of return last year we may be paying 7.75% PLUS 6% on the POB Dole pushed through before he was re-elected and announced his resignation one month after taking the oath of office.
This is a story, are we now paying 14% interest?
One thing I read as part of the problem is the 33% loss they took to their pensions a couple of years ago. I have 2 problems with this:
1) Since the decline of the stock market it has rallied back significantly so they should have receive a large majority of the funds back.
2) Why is it the tax payers responsibility to reimburse the county workers for losses in their retirement? If I risk money in my 401k and lose I will have to pay the consequences. I find this to be another example of passing personal responsibity to someone else. I have to pay attention to my retirement fund so should everyone else. If you make risky investments you can make large sums of money or lose large sums of money. Either way your choice so you lost you have to take less.
. . . the author took the pension bond rate from 6%, which it is, and raised it 33% to 8%.”
The author meant to say, I believe, that investment returns will need to average 8% for its bond scheme to work as intended. But that too isn’t correct.
County taxpayers are on the hook for an expected return rate of 7.75% (I believe). Confident that the market will return to normal, floating bonds at (near) 6% makes sense. It partially closes the funding gap with money costing 6% rather than 7.75%.
But, if market returns fail to at least match the bond rate, the county will have gambled and lost.
Pension enhancement is largely the result of decisions made by the Board of Supervisors a decade ago. They should have seen market conditions faltering then and been more prudent.
Now with the market collapse and 60% of those investments lost, a continuing decline in tax collectible and no improvement in the forseeable future, the current supervisors who inherited this mess need to bite the bullet.
Pre 2002 pension tables need to be reinstated and existing pensioners must take a hit as well. A substantial hit.
County services come first not last. Public safety is overstaffed. We need to realize that public employees work for us and if the people we vote in to manage our public business do a poor job then we get rid of them like any other business would.
Public sector salaries are too high for upper level management, judges, and administrators.
Time to tighten the belt even more. If they scream let them find work in the private sector and see what is really going on in the real world.
Hopefully the panel will have better math skills than the author. To inflame the issue, the author took the pension bond rate from 6%, which it is, and raised it 33% to 8%. Using those tactics, you need to watch closely anyone making decisions here. Lets stick to the facts to work towards a solution and leave the exagerations out of it.