WatchSonoma Watch

The most generous pension benefits anywhere

If you write about public employee pension programs, it’s not unusual to be accused of “pension envy.” After perusing the state legislative analyst’s report on Gov. Jerry Brown’s reform plan, I may understand why. “While there have been some reductions in benefits recently, some California governments still offer the most generous defined pension benefits available anywhere in the United States public or private labor market today.”

OK, it’s a cheap shot.

But the report – read it here – does provide some valuable analysis that gets beyond counting how many people are collecting six-figure paychecks for not working.

One common theme I hear goes something like this, “How am I supposed to make my house payment and pay my kid’s tuition with less than a full paycheck?” As the analyst’s report points out, retirement has traditionally implied that houses are paid for and children educated. With reduced expenses for travel and work attire and a lower tax bracket, the report notes that most people can maintain their standard of living with 65 percent to 75 percent of their working income. Academic research backs that conclusion. “In many cases,” the report says, “California public pension benefits for career employees – couple with other sources of retirement income – can replace far more than the 65 percent to 75 percent income replacement ratio …”

The report also shoots down one of the most common and most misleading arguments against pension reform. That is, with an average benefit of about $25,000 a year, pensions aren’t excessive. The trouble with that number is it masks the significantly larger benefits being paid in recent years. The average CalPERS benefit for an employee with 25 to 30 years of service who retired in 2003-04 was $39,600 – well above the overall average. And by 2008-09, as enhanced benefits took hold, the figure had increased 34 percent to $53,100 a year. An added factor, not addressed in the report, is that the enhanced benefits adopted since 1999 generally have included a younger retirement age as well as bigger payments. With people living longer, that adds up to a lot of money. And taxpayers are on the hook for too much of it.

– Jim Sweeney

20 Responses to “The most generous pension benefits anywhere”

  1. Reality Check says:

    When complaining about the disparity between taxes collected on earned income and those of capital gains and dividends, we shouldn’t forget that dividends are taxed twice–first as corporate profits–and capital gains receive no inflation adjustment nor are fully offset by capital losses.

    $100 in corporate profits intended to be dividends becomes (roughly) $75 after corporate taxes, then the individual pays another $11.25. The feds have now collected 36% in taxes.

    Next, California collects its 9% corporate income tax, and then another percentage when the recipient files taxes.

    By now, that $100 has probably been whittled down in taxes by $50. Is that not enough?

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  2. concerned citizen says:

    Thank you for your response “Lets be reasonable”. My understanding is that you are speaking for county employees on a subject that you may not even know how the rules are monitored? Why would employees with hard to fill positions be offered a severance package? Does the county now hire rocket scientists, and brain surgeons to do the administrative, budget and inspection duties? OR.. Is the county neglegent in putting together a mentor type program for special positions?

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  3. Lets be Reasonable says:

    @concerned – no I don’t work for the County at all, but have friends that do. I couldn’t say for sure if the rules were ever broken. It was my understanding that the positions vacated by these employees were also very hard to refill. The program was meant to lower the County workforce without having to do layoffs, which are very destructive.

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  4. concerned citizen says:

    I appreciate the explanation on the intent and history of the Voluntary Separation Program and how you view the best uses for Sonoma County tax dollars. Do you work in the County Administrators Office? It would be very interesting to find out if all the rules of the program were really followed by the county. Will PD do a story?

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  5. Lets be Reasonable says:

    @GAJ – “The idea that Pensions are sacrosanct and can’t be changed/reduced for those “grandfathered in” strikes me as ridiculous.”
    Yes, I also agree with this. Many employees were able to only pay into the system a single year, and then were able to retire with all of their years of service falling under the new better plan. I objected at the time, but current law seems to make it hard to change what has already been offered. And then there is the fairness issue. Let’s say that an employee retires. Maybe they would’ve worked longer if the plan hadn’t been improved, but with the improved benefits, they thought they could afford to retire. Five years go by, and now we say your pension is going to be reduced. It’s hard to get a new job after being retired for a while, and they played by the rules as they existed when they were working. Sure, someone making the big bucks can afford to have less, but someone who is squeaking by…?

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  6. GAJ says:

    1/3 of my income is in dividends which I pay only 15% tax on.

    I have no issue whatsoever with that tax rate being raised to the level of ordinary income.

    The idea that Pensions are sacrosanct and can’t be changed/reduced for those “grandfathered in” strikes me as ridiculous.

    I’m more than willing to accept less to help the common good, however, it would seem that I’m in the minority.

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  7. Graeme Wellington says:

    At least “Let’s be Reasonable” shifting to blaming George Bush is tacitly admitting the truth all of my points since he didn’t address them.

    What’s wrong with people collectively investing in their retirement pensions and being successful at it?

    You’re saying that a cop who devotes 30 years of his life to public service and paid into a pension fund the entire time and actually survives to collect it doesn’t deserve it because of the Bush tax cuts? Is it any wonder the Occupy movement can’t get traction?

    And the middle-aged white guys with a college education camping in public parks should get free money from those of us with a job?

    What kind of world are you living in?

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  8. Lets be Reasonable says:

    @Graeme – “The “pension envy” thing is what’s going on here. Did you compete for a cop job and lose? Did you work 30 years in a dangerous job? But you support the tax money going to the losers at the occupy thing on general principle?”
    No. No. and No.
    But I do question why the party of fiscal restraint and smaller government has evolved into the protector and promoter of the 1%. The biggest cause of wealth inequality is not the Bush tax cuts removing the top marginal rate, but rather the reduction of the capital gains tax to 15%. The effective rate that the average Joe pays is around 20% – why would you ever want to set up a tax system where the very wealthiest can pay a lower rate than the average Joe? It just makes no sense. And now leading Republican candidates want to lower it to 0% – This would amount to a 15% tax cut for many of the top 1%. Those in the top 1% who earn most of their income through investments would pay virtually no income taxes. How is this fair?

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  9. GAJ says:

    Prior to 1999 we had a relatively sustainable system that benefited all, even though Public Safety benefited most of all.

    With the 1999 power grab by Public Safety’s greed has turned out to be situation where we have Union cannibalism with all other employee groups being slowly eaten to satiate the beast.

    Amazing that the massive increase in benefits were “grandfathered” in to all existing Public Safety employees at the time, (early 2000′s for Cities and Counties), yet we can’t “grandfather” in any rollbacks.

    Sweet deal that…unless you’re a taxpayer or a government employee being represented by a weaker Union.

    Future Public Safety benefits for those not hired yet will suffer as well to sustain the appetite of the Baby Boomer Public Safety Royalty.

    Thank you Gray Davis.

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  10. Lets be Reasonable says:

    @concerned citizen – I believe there are errors to your logic. I believe that employees who received the $20,000 separation incentive are not allowed to work for the County for two years without forfeiting the $20,000. This was meant as a way to cut the number of County employees without having to do layoffs. Mostly a good thing. Further, employees who have retired from the County can not come back to work for the County on a permanent basis without the pension stopping. Normally, the pension gets reset to account for additional years of service, salary etc, and will likely be higher when the person re-retires. In order for an employee to “double-dip” would be for them to retire from the County, and then to go work in the private sector. And I don’t always think double-dipping is a bad thing. It is not much different from someone getting Social Security, but then having to get another job after they lost their home equity, or just to supplement their income. I don’t plan to die after I retire from the City after 30 or 35 years, and part of what I do may involve a small business – is that so wrong?

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  11. concerned citizen says:

    What about the Voluntary Separation Incentive Program where employees were offered up to $20,000 to retire voluntarily. All the supervisors (Supervisor Shirlee Zane agreed too)approved this program. What a sweet deal or was this program just a scam? For example Gail Davis, retired in the Spring of 2010. Ms Davis received a $20,000 separation package, a $71,000 pension and she was hired back by Supervisor Carrillo to work in the Agricultural Commissioner’s office. Now Gail Davis was able to keep her $20,000 package, she receives her $70,000 pension and is also paid her full salary of up to $95,000. How many other county employees were offered this sweet deal? What did Ms. Davis do for Supervisor Carrillo to deserve this payout with taxpayer dollars. Will anyone from the Press Democrat follow up on this?

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  12. Dusty says:

    Reform Prop. 13.

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  13. Dusty says:

    Now let’s bring the owners of real estate protected and subsidized by Prop. 13 to their knees. Prop 13ers use today’s County services at property tax levels that have been frozen since 1978. I’ll take pension.

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  14. Graeme Wellington says:

    The only thing wrong “Let’s be Reasonable” is that CalPERS does have 350 billion in investments and that is what pays the pension. Another thing wrong with “Let’s be Reasonable” is that the pensions don’t come out of city’s general funds and they don’t pay retirement benefits from tax dollars.

    You’ve made a point, but nothing to do with reality. Your scenario hasn’t happened and CalPERS has averaged 8-10% profits through all the ups and downs over the long run over any above pension payments.

    I remember when Pete Wilson tried to raid the PERS coffers to balance the state budget — the Supreme Court stopped him. PERS’s money is not state money.

    The “pension envy” thing is what’s going on here. Did you compete for a cop job and lose? Did you work 30 years in a dangerous job? But you support the tax money going to the losers at the occupy thing on general principle?

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  15. Lamplighter says:

    I would challenge anyone to find a more generous retirement benefit for ANY Government employee ANYWHERE than the benefits for Sonoma County general service employees.

    3% @ 60 times number of years worked.

    Social Security included (Santa Rosa does not pay into Social Security).

    $6000/year retiree medical (Santa Rosa does not).

    5% 401(a) for management 6% 401(a) for Elected officials.

    401(a) as well as auto allowance, etc. included in final year salary.

    50% of employee retirement contribution paid for electeds.

    First one to show us a more generous (and in turn most unfunded) entity I will donate $10 to their favorite charity.

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  16. Lets be Reasonable says:

    @Graeme writes – “Isn’t the taxpayer expense incurred while the person is working and end when they retire? Don’t the contributions stop when someone retires and the pension payments come from an annuity based on contributions made while they were working?”
    In a perfect world, yes. If investment returns were always constant, then a City like Santa Rosa would be given an amount that would need to be paid to build up that annuity for their existing work force. Problems creep in when investment return fluctuates widely. If the portfolio loses a bunch of money, then you get to a situation where it is “under funded” and there is no longer enough to pay current and future retirees. In that situation, Santa Rosa’s rates would go up to make up for the losses over a period of 5 or so years under a smoothing formula. This could lead to the City having to pay additional current money to pay for a current retiree. The opposite can also occur, and you get to a “super funded” state, and the City’s rate would then go down. Another situation where you might be paying retiree costs out of current money could also happen when you improve plans, and give that to an employee just about to retire – the employee hasn’t paid for the improved plan, but get the improved benefit. Likewise, if an agency allows spiking, then the employee benefits from a pension that was not completely paid for. Also, some agencies are allowed to purposely keep their account “under funded” below a reasonable level, thinking that the money is better spent elsewhere.

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  17. Lets be Reasonable says:

    @Mr Sweeney – You title your article “The most generous pension benefits anywhere” and then go on to cite an LAO article that says:
    “As described above, there is considerable variety among California’s public retirement systems. As such, it is difficult to generalize about the specific benefit packages provided to public workers and retirees today”
    And yet, that is exactly what you did…
    Yes, public pensions for the most part are unsustainable and need to be modified, but I don’t think it helps the discussion to put all public employees into the same boat. Different agencies are in different situations, and even within a particular agency, there are differences between different types of employees (e.g. safety and non-safety). All you are doing is inflaming your readers without providing anything useful. Instead, why don’t you do some investigative reporting and find out how County management employees are able to spike their retirements. Maybe find some examples of extreme abuse. And then compare that to what the median rank and file pension is. Or compare the current median safety pension to that for non-safety pensions at Santa Rosa. Lots of useful stuff you could be doing.

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  18. sarkyfish says:

    California democrats = unions = ripping off the people to fund an elite bureaucracy that manufactures nothing but rules. It’s odd that editor Sweeney has not yet solved this simple equation.

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  19. Graeme Wellington says:

    Isn’t the taxpayer expense incurred while the person is working and end when they retire? Don’t the contributions stop when someone retires and the pension payments come from an annuity based on contributions made while they were working?

    I thought PERS has 350 billion dollar investment portfolio to pay the pensions. Where is the taxpayer portion of the pension coming from? Do cities really pay forever even after someone retires? I’m pretty sure most people think the city budget is paying the retirement pensions directly out of general funds. But that isn’t true is it?

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  20. Doug Floyd says:

    Retirement programs like the Sonoma County pension plan are ponzi schemes. They are unsustainable and bankrupting the county. There are too many retirees drawing to much money and ratio of active employees to retirees is disproportional.

    Draconian measures are going to have to be make to cut the hundreds of millions of dollars of unfunded liability.

    City pension plans with PERS face a similar fate. Their liability is balooning every month and will crash if nothing is done.

    Putting off action, kicking the can down the road will not work. Cuts will have to be made to existing pensions and vast chances in benefits made to keep the pensions going, if they can saved.

    Too many promises and commitments were made that cannot be cashed in because the money to fund them will not be there.

    The politicians are to blame for this folly. They could not say no to the public unions. The politicians did not and do not serve the public well by not taking action to correct this fiscal disaster.

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