.
Feedback

Police and Firefighter Pensions Threaten Government Solvency

The dilemma: There are no dedicated funds, but agencies are contractually obligated to pay.

Editor’s Note: This is the third in The county Sheriff’s Department and Orange County Fire Authority are hired by many cities to provide police and fire services. Their contracts are consistently some of the costliest items in local budgets, which are being voted on this month by city officials.

As debate swirls over wages and overtime for police and firefighters, a much bigger nightmare looms: pensions.

In the not-too-distant future, public employee pension costs threaten the solvency of government agencies in California and throughout the nation.

And there's no easy solution. Orange County and other agencies are contractually and legally bound to honor the pension agreements signed long ago with public safety employees. The California Supreme Court this spring shot down an attempt led by O.C. Supervisor John Moorlach to get rid of some generous retirement benefits. The failure has left the county on the hook for what could amount to $5 million in legal bills. 

SHERIFF'S DEPARTMENT PENSIONS

Four years ago, the county–led by Moorlach and his former chief of staff, Mario Mainero—tried to pull back the Orange County Sheriff’s Department’s “3 percent at 50” pension plan for sheriff’s deputies.

This is a common formula offered in 37 counties throughout the state by the California Public Employee Retirement System, according to the Peace Officers Research Association of California.

That's a total of 251 agencies.

Under the plan, at age 50, a sheriff’s deputy can retire and receive 3 percent of his yearly wages for each year he served, according to the Peace Officers Research Association. The 3 percent figure is usually calculated using the highest-paid year's base pay, or using an average of the three highest-paid years' base pay, depending on the contract.

So, according to the Peace Officers Research Association of California’s site, a deputy who retires at 50 after 20 years of service would receive 60 percent of his salary from the Public Employee Retirement System every year until he died.

Under some plans, a spouse or other dependent survivor can continue to receive half the payout after the retiree's death, according to CalPERS literature.

Multiply that by the tens of thousands of California employees with 3-percent-at-50 contracts, and it's easy to see the cost ballooning out of control.

After Orange County lost its court battle to overturn the formula, Moorlach took to his blog, predicting pension costs would undermine other vital services.

“I’m just back from a tour of the Dayle McIntosh Center for the disabled,” Moorlach wrote. “It is programs like these that will suffer in order for the taxpayers to pay for a 50 percent increase in pension benefits for government employees who paid nothing for them and for which no funds were set aside during their careers...

“Wayne Quint [then-president of the Orange County Deputy Sheriff's Association] owes the taxpayers of Orange County a big thank you for this incredible awarding of a life-time guaranteed income,” he continued.

Many taxpayer groups are also unhappy with the pensions that public safety workers receive.

“We think they do deserve a good rate of pay, but when they retire at 50 at full pay, that’s not right,” said Kris Vosburgh, executive director of the Howard Jarvis Taxpayers Association.

“That they can get paid $100,000 every year forever is insane,” said O.C. Supervisor Shawn Nelson.

The top tier of deputies in the OCSD receive 3 percent of their highest-paid year in the calculation of their retirement, whereas a lower-tiered employee gets 3 percent of the average of his or her three highest-paid years, which works out to a lower figure.

FIREFIGHTER PENSIONS

The Orange County Fire Authority renegotiated some of its contracts late last year and this year to increase the employee pay-in for its retirement system, but pensions still pose a looming burden.

OCFA Spokesman Kris Concepcion said he and his colleagues also have a 3-percent-at-50 pension plan. Contrary to popular assumption, overtime is not included in the salary calculation, he said.

In other words, a hypothetical firefighter’s 3 percent would be calculated using his or her $80,000 base salary, not the $120,000 total salary that includes overtime.

Concepcion countered characterizations that most employees retire with 90 percent of their salaries at 50. Though it’s mathematically possible for rank-and-file firefighters to retire at 50 with most of their salary in pension payouts, it seldom happens that way.

Employees don’t tend to start at 20 and work at the same place for 30 years anymore, he said.

Concepcion said the several unions who organize OCFA employees have agreed to concessions over the last seven months—addressed in Part 4 of this series—that will save the authority tens of millions in pension costs. In part, firefighters will be stepping up retirement contributions to 9 percent.

County Supervisor Nelson said all employees should pay in half the cost of their pensions and there should be a cap on how big a pension could be, although he doesn’t know the “right number.”

Nelson said at OCFA, the cost of a typical pension is 60 percent of an employee's base salary.

So, if someone makes $100,000, that's a $60,000-per-year pension, independent of how much overtime that employee took during his or her career.


-- San Clemente Patch Editor Adam Townsend contributed to this article

Rich June 8, 2011 at 04:30 pm
metOO, its either we break these public unions up or us tacpayers (including our kids) will be paying the union beast forever. We also need to take away the insane entitlement programs and boot every blook sucking illegal alien out of this country before we hit the iceberg and sink.
Or do you have a beter solution? I'm not paying more taxes thats for sure!
LeAna Bui June 8, 2011 at 06:41 pm
Maybe the authors of this article could better explain exactly how the pensions work?? My understanding is that money is contributed to investments over the life of the employee (in many cases, the employee does contribute to this fund). The money for the pension payouts is supposed to come from that fund. While the market was making money, municipalities were agreeing to these generous deals because they shortsightedly believed the money would never come from public coffers - that the bull market would continue forever. Now those same funds are expected to be short and, in some cases, municipalities are paying toward pensions now and everyone is screaming.
I understand people's concerns, but, like Rich said, these agreements were already made - when you tear apart the union you are attacking people's lives - the very same people you hope are going to show up when you have a fire or other emergency. The city of Brea just quietly re-negotiated all their contracts and were successful in reducing their pension liability. Maybe we could all take a page from this?
LeAna Bui June 8, 2011 at 06:42 pm
Correction - Met00 - is reminding us that these were agreements made in good faith, not Rich. Sorry!
PC June 8, 2011 at 07:45 pm
Good Faith? Fine, until there is no more money. The answer is that these workers need to pay a "Tax" that balances their payout to the market conditions. Otherwise the state needs to go backrupt and they will get pennies... too bad but that is the bubble going POP!
Earick Ward June 8, 2011 at 09:47 pm
Incest. The PEU's negotiated with the City, County, State (Democratic) politicians. PEU's then, in gratitude for the plum contracts donated 98% of their campaign financing to "said" politicians.
Wash-rinse-repeat. Raising taxes in California(one of the highest taxed States in the country) would kill the state, by chasing even more businesses and wealthy people out of the state.
Earick Ward June 8, 2011 at 09:48 pm
@PC - There is no more money.
j denton June 9, 2011 at 10:39 am
Perhaps this article should have been titled;
Politicians Underfunded Agreements Threatens Government Solvency
Capo Parent June 9, 2011 at 01:29 pm
Sorry, but the public can't afford the deals made. Lost in the analysis is the fact that no politican, Demo or Repub, wants to go against law enforcement and fireman. All want to be viewed as staunchly in favor of public safety, no matter the cost. Deals were made based on political expediency, unrealistic assumptions about rates of return and failure of the politicians to really lookout for the public's interest. The situation was compounded by the failure of gov't bodies to properly fund their pension obligations. If they had, the true cost would have become apparent much faster and the public alerted much earlier to this ticking time bomb. Whether or not the pensions are deserved is now irrelevant. The question is can the entities that owe the pensions pay for them without heavily taxing the public? It appears the answer is no. As a result, pensions need to be phased out for all new employees, and for existing employees, a requirement that they contribute a lot more towards their pensions. MetOO will likely squawk at this and claim it is unfair, but that's life.
Julie Flores June 9, 2011 at 01:38 pm
Heavily taxing? Taxes are at a 60 year low. That's why there is no money. Jobs outsourced by corporations leaves Americans unemployed, so fewer taxpayers. Unregulated banks demolished this country, creating massive unemployment while obscene bonuses were handed out to their execs. But by all means, public service workers who are the backbone of your safe OC neighborhood should forgo their benefits because life isn't fair. It sure isn't in today's America.
Shripathi Kamath June 9, 2011 at 01:39 pm
You were doing squeaky clean with the GOP till you brought on the bankruptcy. The 1994 bankruptcy is not so straightforward that it can be exclusively blamed on the GOP.
Robert Citron was the treasurer, and he was a Democrat. http://en.wikipedia.org/wiki/Robert_Citron Granted that he was not your run-of-the-mill Democrat, but he was one. A very rare one in the county. Your point would be better served if you would continue to extol the pitfalls of underfunding pensions, because the 1994 bankruptcy had similar underpinnings. Short of money->huge bets on the stock market->lost everything. But no tax increases.
Shripathi Kamath June 9, 2011 at 01:45 pm
"Deals were made based on political expediency, unrealistic assumptions about rates of return and failure of the politicians to really lookout for the public's interest"
Who elects these politicians, and therefore bears the ultimate responsibility of their decisions? "As a result, pensions need to be phased out for all new employees, and for existing employees, a requirement that they contribute a lot more towards their pensions. MetOO will likely squawk at this and claim it is unfair, but that's life." In other words negotiate with the unions? Or spend millions in lawsuits trying to renege on legally binding agreements that has already made the hole larger with a vociferous cheer-leading squadron in tow, encouraging these very officials to fight the unions?
James Schumaker June 9, 2011 at 02:56 pm
My understanding is that the pension deal was made because there was a legitimate fear that, in the absence of such a contract, Orange County would be unable to recruit sufficient numbers of police and firefighters, since there were better pay and pension packages available in other counties. Now, nearly a decade after the fact, I'm not so sure that this was ever the case, but it doesn't change the reality of the situation. Orange County made a very bad deal, and the courts have told us we are stuck with it. The real question is where we go from here. Money is going to have to be found to pay the pensions, and ways are going to have to be found to ensure that new hires do not receive similarly lucrative deals. It's a mess, all right, but at least Orange County is relatively well off, and if we can muster the necessary political will, we do have the means to pay and to avoid such disastrous financial mistakes in the future. Regrettably, that is not the case with many other counties around the U.S. that are facing even greater problems.
Shripathi Kamath June 9, 2011 at 03:15 pm
And such requires adult discussions.
Between the legislators and the public employees (unions, where applicable). Not disingenuous rhetoric of "taxed to death", "union thugs", "illegal aliens" and other assorted, disconnected slogans. A good example of such negotiations can be seen in the city of Mission Viejo. They too felt the burden of the pension plans negotiated a decade ago by their predecessors, but they chose to take a rational approach. Sat down and discussed it. The deal? A nominal pay raise, and an increased contribution on the part of the employees. Peter "The Editor" Schelden did a good job of reporting that, read it here: http://missionviejo.patch.com/articles/pay-raise-pension-cut-request-from-mission-viejo-city-staff People will negotiate when they have a lot to lose, and much to salvage. The county going bankrupt is not in anyone's best interests. It does not help though when you insist reneging on agreements made in good faith, especially when it was you that exercised poor judgment in the first place. That leaves the other side with no choice. You always negotiate as long as you have that option.
Drew Mendelson June 10, 2011 at 01:55 pm
Before jumping to unfair conclusions about public pensions, read the just released report from the National Conference on Public Employee Retirement Systems. http://www.ncpers.org/Files/2011_06_ncpers_public_fund_study.pdf It finds that public pension funds are experiencing a robust recovery from the historic market downturn of 2008-2009 – reporting strong investment returns, growing assets and funding levels on track to meet obligations. In addition, funds have responded to changes in the economic, political and social landscape by adopting substantial organizational and operational changes to ensure their long-term sustainability.
Despite the uproar over expensive pensions, 98% of state and local retirees have modest retirement benefits, far smaller than the $100,000 a year pensions that have become the boogeyman for public pension opponents. The average is $26,000 a year. Pensions for police and firefighters are larger than those for other public workers but for a sound reason: their work requires great physical stamina. Thus their pensions are structured to encourage them to retire before age lessens their abilities, leaving the work to younger public safety personnel. Finally, as to bankrupting government: here in California at the state level, pensions account for just 3% of the budget. At the local level 180 city, county and special districts have negotiated significant changes that keep public pensions fair while reducing taxpayer costs.
Capo Parent June 10, 2011 at 03:00 pm
The fact the report is issued by the National Conference on Public Employee Retirement Systems may have something to do with the rosy outlook projected. Assuming the report is accurate, then pensions should be modified so that the public/taxpayers no longer guarantee the pensions. Additionally, cap the amount of money an employer has to contribute, e.g., 85% of a particular year, with no cola increases.
LeAna Bui June 10, 2011 at 03:24 pm
Deals were made based on political expediency, unrealistic assumptions about rates of return and failure of the politicians to really lookout for the public's interest.
And the public has failed to proactively "police" their government.......There is plenty of blame to spread around.
LeAna Bui June 10, 2011 at 03:27 pm
Thank you for the informative article, Drew.
Drew Mendelson June 10, 2011 at 04:33 pm
NCPERS has been around since 1941 and is widely regarded as a highly respected and unbiased source. As to unguaranteed pensions, that's the rathole down which private sector retirement savings disappeared. As a result of such a switch in the private sector, 80 percent of those workers have virtually no retirement savings. Many private sector workers are now looking at working years past 65 (or maybe not even being able to retire at all). And you may think that insecure 401k-type plans are cheaper but they aren't. Higher management costs make them more expensive than defined benefit plans. Even so, the data show that 401ks earn about 25% less on investments than do those in DB pension funds. Finally, you should note that taxpayers suply only a small fraction of public pension funding. Most comes from investments, with another chunk coming from the workers themselves. Many of the local level plans that once contributed both the employer and emplooyee shares are shifting or have alread shifted to a shared contribution from both, significantly reducing any cost to the taxpayer. Before you say, well the taxpayer shouldn't have to pay anything, take a look at the return they get on their investment. Because of investment earnings and pension payments received by local retirees, $6 comes back to the local economy for every $1 of taxpayer money that goes into the fund. Where else do you see that kind of return?
LeAna Bui June 10, 2011 at 05:22 pm
My point exactly.......
Capo Parent June 10, 2011 at 05:26 pm
You're talking about back end return, I'm talking about front end payments.
I have no problem with reasonable pensions. However, when you have pensions over $70,000 a year (and many would say that's too high) that's a problem, when you get over $100,000, that is outrageous.
LeAna Bui June 10, 2011 at 05:28 pm
Unfortunately, this is the information that does NOT make it into press articles. I applaud the Patch for doing a review of this nature, but I think it would be very important that information such as Drew has shared be part of such a series. As Drew as done, sources can be cited so the reader can determine for themselves if they believe it credible or not - unfortunately, the information in the article (and the headline about pensions threatening government solvency) only fans the flames for those whose kneejerk reaction is to blame someone else, in this case, public employee unions.
Shripathi Kamath June 10, 2011 at 05:30 pm
What do you consider a reasonable pension?
I get it that you think 70K is a problem, 100K is loony-tunes, but what's the number you have in mind, and if you can, please explain the rationale by which you arrived at it?
j denton June 10, 2011 at 06:13 pm
Who needs politicians?, i think the dialogue over the past two days has come very close to a resolve on this issue.
Shripathi Kamath June 10, 2011 at 07:00 pm
We do need politicians who understand the value instead of flame throwers who simply engage in vitriolic rhetoric and bombast.
You're quite right that dialog is the key. @metoo, I think 'hate' is too strong a word for 1, and 2. I suggest 'dislike'.
Shripathi Kamath June 10, 2011 at 07:04 pm
Now if we can get Capo Parent to agree or propose a counter-offer to negotiate we can get a deal or inch towards getting one. Then, as we get more people on board, both union thugs and tax-to-death citizens, we can get the politicians who also endorse this, elected.
Soon, the world will be ours in another triumph of democracy [then he wakes up] PS Nice job metoo, in at least proposing a scheme.
Dr. Zillman August 11, 2011 at 03:22 am
-"The average is $26,000 a year."
The $26k figure is very misleading. Just like the national average income. I find it hard to believe that number is for Orange county. Every single person I know that is retired on a government pension is making at least double that number. Add to that guaranteed "cost of living" increases, and you have a completely unsustainable financial drain on tax revenue. "...far smaller than the $100,000 a year pensions that have become the boogeyman for public pension opponents." -They are called-out for a reason. Believe it or not, a large number of OCFD are in the $100k club. Quite a few are in the multi-six figure club. I know a Captain that is retired with more pension compensation than a friend who is a surgeon. "Pensions for police and firefighters are larger than those for other public workers but for a sound reason: their work requires great physical stamina." -So dry wallers and framers should receive large pensions as well? Ridiculous. Are you aware that the average time a firefighter spends actually responding to or fighting a fire is 5%? Most of their time is spent on medical transport and EMT calls. This is why over 3400 applicants turned-out for the last call for 320 firefighter positions.
Dr. Zillman August 11, 2011 at 03:23 am
"...funds are experiencing a robust recovery from the historic market downturn of 2008-2009 – reporting strong investment returns..."
-Proof? So the investments for public pensions are experiencing a special "magical" robust recovery, but everyone else's 401k's are tanking in the markets. Absurd. You would have to be a fool to believe this. "...funding levels on track to meet obligations." -Complete fluff. This outrage is a result of more awareness by the public. Government worker salary and benefit data is available online, so there isn't really any "boogeyman." All of this is occurring during a historic economic downturn, with many if not most private sector workers experiencing double-digit salary cuts.
J. Billman October 6, 2012 at 03:22 am
I first caught wind of the outrageous retirement compensation & overtime firefighters and law enforcement receive quite by accident. Attending a dinner with a friend. two female friends were also there, one with a 52 y.o. retired firefighter, the other with a retired 54 y.o.lieutenant from South OC. Both men were fit, tan and relaxed. I soon found out why. Both were collecting monthly pension checks over $11,000.00. Both had dual incomes, one owned a small electrical contracting Co., The other was a security consultant. Based on conversations, I would guesstimate that each was pocketing $20,000.00/month in dual income. The dinner's host,worked as CFO at a Financial services co in OC for the last 24 years, 59 years old and in quite a different situation. Due to the economy,, he and Sr Staff Members have taken pay cuts of 5%/year for last 4 years Medical Ins. that 5 years cost nothing for employees, cut completely!.Co. funded portion of 401K plan, eliminated! Why? Because, a private enterprise requires profitability for survival,Everyone accepts cuts in pay & benefits or they have no job! These survivors felt lucky, 100 workers were let go. No golden parachutes here. Just, sorry. good luck. Why should gov't workers be insulated from the economic realities private sector workers accept as norm?. If a co. prospers, you prosper If times are bad, like now, take the cuts or take a hike.I doubt these two overcompensated gov;t leeches have ever given such things any thought. ..
Dr. Zillman October 6, 2012 at 12:50 pm
J. Billman:
Good example of current private sector vs. public sector compensation. Your experience is similar to many of mine. What a wpnderful fantasy of entitlement to expect to maintain such ridiculous pension obligations.
met00 October 8, 2012 at 03:56 am
When we hired these two guys we didn't pay them a wage that would compensate them well enough to take the jobs, so our government cut a deal in which they would work for a period of time and then after they retired we would continue to pay them.
Was it a good deal? A smart deal? I personally don't think so, but then I wasn't the elected representative that wanted to pay them more then and didn't have the money to do so. I didn't negotiate to pay them a smaller salary NOW and promised to pay them when they were not working later to make up for it. But they honestly provided the service we paid them for at the time we made the deal, and they agreed to accept their additional payment from us as a part of their overall compensation package. They kept their end of the bargain, now we have to keep ours. You seem to forget that we aren't "paying for them now", we are paying them for services provided years ago, that we cut a deal to pay for later rather than pay for at the time the service was rendered. You don't like the deal? Too friggin bad. Go find the elected officials that cut the deals and go hang them, not the guys that agreed to work for those conditions. I don't like the fact that some of these guys are "double dipping" the system, but I don't blame them for the deal, I blame the elected officials that cut the deal and then UNDERFUNDED to pension plans so we get stuck with the bills today.

Newsletter & Alerts

Get the best stories each day and important breaking news

Subscribe

Not from San Clemente Patch? Find your Local Patch »

Note Article
Just a short thought to get the word out quickly about anything in your neighborhood.
Share something with your neighbors. Write a new post... What's up? Make an announcement, speak your mind, or sell something
D.M. June 18, 2013 at 08:46 am
Any chance they'll add back the daily weather in the header? or anywhere? I used to check theRead More Patch daily just for the weather which of course led me to the additional news articles but I honestly don't read it as often now since the weather is not on the 'new look'.
Penny Arévalo (Editor) June 18, 2013 at 10:24 am
It's being discussed, but it's further down the list. I know we're working on bringing back theRead More comment stream (the quotes people would leave a stories, I always loved that). We're making tweaks everyday, and I think the look is a huge improvement over little blue East Coast houses. ;-)
lost hikers Jonny and Zach
Maura Mikulec June 1, 2013 at 08:17 pm
Arg. So frustrated. I really wanted to read this article, but will not read an article of thisRead More length with *no paragraph breaks*. This is not the first time I've encountered this on The Patch. Very frustrating....actually haven't even looked at The Patch in a bit because last time, same thing. Arg.