Reform ends market pressure to boost pensions

The Antioch city council is scrambling to reverse previous pension cuts before a statewide reform takes effect Jan. 1, an attempt to aid the recruitment of experienced police officers from other cities.

The reform pushed through the Legislature by Gov. Brown imposes a uniform lower pension formula for new hires. Unions no longer will be able to bargain for higher pensions from the current CalPERS menu of a half dozen formulas.

Only about 30 states allow collective bargaining by public employees. And of these only a few have allowed bargaining for retirement benefits, among them Vermont and New Jersey.

The proposal in Antioch last week, a city of 102,000 on the east edge of San Francisco Bay, is one of the last shots in what some call a “bidding war” that raised pensions to meet or exceed benefits offered by other government employers.

Instead of being based on replacement income needed for an adequate retirement, critics say, pension amounts tended to result from a market-like competition with other government employers that “ratcheted up” benefits for no apparent reason.

Agreeing to provide a higher pension is a way for employers to increase worker compensation without immediately straining tight budgets, since most costs are delayed for decades.

Pension increases were aided when CalPERS sponsored a major retroactive pension increase for state workers, SB 400 in 1999. CalPERS erroneously told legislators the increased costs would be covered for a decade by a surplus and investment earnings.

When AB 616 in 2001 broadened the pension menu by adding three more formulas, CalPERS encouraged local governments to raise pensions by offering to actuarially inflate the value of their investment funds to help cover the increased cost.

Much of the criticism of SB 400 has focused on the big pension increase for the California Highway Patrol. The formula jumped from 2 percent of final pay for each year served at age 50 to 3 percent of final pay at age 50.

The “3 at 50” formula set a bargaining benchmark widely adopted for police and firefighters, a big part of local government budgets. The formula is often cited by critics who say “unsustainable” pension costs divert too much money from other programs.

(Although few start work that young, the formula allows those with 30 years of service at age 50 to retire with a pension providing 90 percent of final pay and inflation adjustments. Their life expectancy is a little longer than the 30 years spent on the job.)

The pension formulas set by the reform bill, AB 340, are for new hires. The pensions of current workers are regarded as “vested” rights, protected by contract law under court decisions, that can only be cut if offset by a comparable new benefit.

The top formula for new police and firefighters, “2.7 at 57,” is a significant cut from “3 at 50” and a little less generous than the formula used before SB 400 increased the pension amount, “2 at 50,” which escalated to 2.7 at age 55.

Antioch city council

Antioch city council

Here’s the issue that surfaced in Antioch:

Under the reform bill experienced new hires get the pension formula used on the job prior to the reform instead of “2.7 at 57,” if through a previous employer they already are members of CalPERS or one of the 20 county systems.

Antioch police agreed to a cost-cutting contract change Sept. 1 that gives new hires a pension formula of “3 at 55.” Now the proposal is to return to “3 at 50” before AB 340 takes effect Jan. 1 to give the city an edge in attracting experienced new hires.

Police Chief Allan Cantando is pushing the plan because Antioch, after years of deep staff cuts, is hiring again. He wants experienced “lateral” transfers ready to work the streets immediately and to guide and support new police academy graduates.

A survey of 15 area cities given to the city council last week showed five with “3 at 50” (Concord, El Cerrito, Richmond, San Pablo and Vallejo), eight with “3 at 55” (including Antioch neighbors Pittsburg and Brentwood) and two with “2 at 50.”

The Antioch proposal also would return the pension formula for non-safety or miscellaneous employees to “2.7 at 55,” up from a cut to “2 at 55” in 2007. A report to the council said this pension increase is needed to be “equitable and competitive.”

A motion of intent to raise the two pension formulas was approved last week on a 5-to-0 vote. The council expects a cost estimate from CalPERS tomorrow (Dec. 4) and, procedurally, would need a special meeting Dec. 26 or 27 to meet the Jan. 1 deadline.

Cantando said the police department may, with expected vacancies, hire 15 to 25 officers during the next 18 months. He said one officer has been hired since the lower “3 at 55” formula began Sept. 1.

The city reportedly has hired about eight miscellaneous employees since that formula was lowered five years ago. They would be retroactively vested in the higher “2.7 at 55” formula if it is adopted by the council later this month.

The argument for the pension increase is that it’s a “tool,” like a signing bonus or other incentives, that can be used in recruitment. Some council members suggested the increase may not be approved if the CalPERS cost estimate is too high.

A San Francisco television station said Antioch was going against the tide of cost-cutting reform on a “hot button” issue. A Contra Costa Times columnist, Daniel Borenstein, said the proposal is “wrongheaded” in a city with a large pension debt.

In an apparent reference to the columnist, outgoing councilman Brian Kalinowski said “unlike one of my good Sunday morning reads,” he thinks the “3 at 50” formula resulted from study showing officers working the street at age 57 is not good policy.

“I actually think when cooler heads prevail the state will come back and have something more reasonable in the arena for public safety,” said Kalinowski.

Borenstein’s report in 2009 that two Contra Costa fire chiefs retired at ages 50 and 51 with pensions far above their salaries (in one case $185,000 salary and $240,000 pension) sparked legislation to curb the improper boosting or “spiking” of pensions.

The spiking struggle continued last week when a superior court judge approved a stay sought by unions of a Contra Costa County Employees Retirement Association decision to comply with anti-spiking provisions in the new pension reform legislation.

On retirement, cash payments for unused vacation, holiday, administrative and sick time that can be added to the final salary used to calculate pensions are limited to the amount normally earned in a single year.

The unions contend that the single-year limit on “terminal pay” in AB 197, a companion to the main reform bill, AB 340, violates their vested rights and would reduce the pensions expected by members of the county system.

The stay means hundreds of Contra Costa County workers considering early retirement to avoid a pension cut may stay on the job after the new law takes effect Jan. 1, the Contra Costa Times reported.

The two other 1937 act county retirement systems with similar terminal pay policies, Alameda and Merced, are said to be complying with the new anti-spiking legislation.

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at http://calpensions.com/ Posted 3 Dec 12

19 Responses to “Reform ends market pressure to boost pensions”

  1. spension Says:

    The usual argument that many who want to cut pensions would make now is… that Antioch City Council is bought and paid for by the Police and Firefighter’s unions. I disagree with that analysis.

    I think the Antioch Council is struggling with a deeper unsustainability… the labor market for police and firefighters is somehow artificially constrained on the supply side. And so municipalities and counties bid up post-retirement benefits.

    What I don’t understand is why safety employees from throughout the US aren’t applying for and receiving California jobs. My work takes me throughout the US and I generally find that the cops and occasional firefighter I meet actually would like to relocate. But I don’t know why we can’t tap that large supply market for California positions.

  2. captain Says:

    “The usual argument that many who want to cut pensions would make now is… that Antioch City Council is bought and paid for by the Police and Firefighter’s unions. I disagree with that analysis.”

    - You might, but I wont. The truth is Antioch is one of the highest paid departments in the state and the nation.

    “I think the Antioch Council is struggling with a deeper unsustainability… the labor market for police and firefighters is somehow artificially constrained on the supply side.”

    - Regarding the first part of that comment the only thing the Antioch council is struggling with is how do they justify, to the public, that they are going to screw them even further because they (the council) are beholden to the unions. Regarding the labor market for the FD the supply/demand curve verse compensation has been out of whack for at leat the 20 years. Oakland PD just had 2000 applicants for 40 positions, and they accepted 1300 for testing.

    The only people claiming they can’t find applicants are the public safety unions that are trying to justify their compensation & benefits.

  3. Tough Love Says:

    The self-interest of the Unions makes it quite easy to ALWAYS find too few “acceptable” candidates. It keeps the supply down and the pay, pensions, and benefits up.

    Rigged against the Taxpayers, wouldn’t you say?

  4. spension Says:

    Seems to me if someone could describe in detail how the winnowing process, say, in Oakland from 2,000 down to just about none is carried out in practice. Does the union refuse membership somehow? Is the testing process manipulated? There are 49 other states out there with generally lower salaries and benefits for their safety employees. Seems to me that at least should be a source of experienced candidates willing to work for a decent but not extravagant compensation.

  5. SeeSaw Says:

    They are looking for candidates who have already been through the Academy and have already been active officers in other CA cities. If a potential candidate is already working in a City with the 3% at 50, pension formula, he/she may not be willing to take a lateral transfer to a City with a lessor formula. As far as the union is concerned–it is management in the respective hiring entity that is making the decisions on who will be hired–not the unions.l

  6. Tough Love Says:

    Weeding out criteria (in priority order):
    (1) Immediate family in (or retired from) the Department ….”check”
    (2) Close but not Immediate family in the Department ….”check”
    (3) Politically “connected” (Democratic of course) …. “check”
    (4) Strong “Union” man ….. “check”
    (5) Party person ……. “check”
    *
    *
    *
    (999) Well qualified physically, ethically, & mentally …. “check”

  7. spension Says:

    Any proof? A weblink, TL? Or merely speculation?

    SS… why wouldn’t a safety officer from Florida or Illinois or New York be suitable?

  8. SeeSaw Says:

    It’s up to the hiring entity–however, if they are looking for lateral transfers, applicants from other states are not that.

  9. Tough Love Says:

    SeeSaw, Have you noted that by only being willing to hire from within CA cities, when one City gains headcount, another loses headcount, keeping the employed total the same …. as well as the contrived supply scarcity.

    All well orchestrated to keep the pay and pensions FAR greater than necessary.

  10. captain Says:

    “It’s up to the hiring entity–however, if they are looking for lateral transfers, .”

    And just who do you think that is? There seems to be a trend of CA PD’s claiming they need laterals which appears, to me, to have more to do with one city downsizing and placing the displaced officers in a “sister city” on a temporary basis. The Goal of the downsizing city is to hold firm on compensation & benefit issues while allowing service to suffer (like Vallejo & San Jose) – and then re-hiring the employees at a later date when retirements provide openings. The city hiring the laterals (may) not benefit at all in the long run as they will need to rehire anyway. The downsizing city places the officer on active reserve to facilitate the re-hire without having to go through background checks upon the officer’s re-entry.

    While I do not have a problem with what I’ve just described, I do have a problem with city council members, in a broke city, trying to circumvent brand spanking new pension rules to satisfy the unsubstantial desires of their police union – while completely ignoring their fiscal reality and duty as elected officials. While the Antioch city council is allowing this nonsense to continue the Antioch PD has been decreasing the civilian PD workforce by over 50 percent and backfilling those positions with sworn officers at twice the cost.

    The Antioch PD has ONLY about 17% of sworn officers under the age of 30. Nothing like creating a vacuum regarding the future of the department.

    “applicants from other states are not that.” Says who, SeeSaw?

    San Jose PD went on a city paid recruiting trip to New York and came back boasting about 550 qualified applicants. it wasn’t until contract negotiations began that the some of the same people that went on the recruiting trip claimed they couldn’t find qualified applicants (in a SJ Mercury article). In the same article the city manager had to remind said individuals about the their claim of a very successful recruiting trip.

  11. SeeSaw Says:

    I have no dog in the fight. Just saying what I am observing. Antioch wants lateral transfers so that it doesn’t have to spend money training new hires, and it figures it will be cheaper in the long run to offer them the same pension plan already in affect there. And, if they do it, it must be done prior to Jan. 1, 2013. Then, of course, the cities that lose the transferring personnel will find themselves in a pickle to replace those that are going, because they will be mandated to offer lower formulas. I personally cannot see where having the 3% at 55 formula would be any detriment to hiring new workers, right not, because most PS workers do not have full careers in by age 50 anyway. (My own former employer changed from the 3% at 50, to 3% at 55, seven years ago.) The only reason all the formulas were changed with the pension reform act, was to satisfy people like you–it was not necessary, with the new cap on pensionable salary for high earners. The people you are accusing of contriving are Management–not unions. You are so blinded by your hatrid of unions that you are aware of nothing behind the trees in the forest.

  12. captain Says:

    “(My own former employer changed from the 3% at 50, to 3% at 55, seven years ago.) The only reason all the formulas were changed with the pension reform act, was to satisfy people like you–it was not necessary, with the new cap on pensionable salary for high earners. The people you are accusing of contriving are Management–not unions. You are so blinded by your hatrid of unions that you are aware of nothing behind the trees in the forest.”

    “The people you are accusing of contriving are Management–not unions.”

    Management represents a small fraction of the pension abusers, although they ar pension abusers as well. Number 1 on the list are public safety union members which have higher formulas for less years of service, and more years of payouts. The problem is really the payouts, pension formulas, and on the add ons and abuses of taxpayer dollars at the soiled hands of all California government employee unions – and the very corrupt organization known as CalPERS.

    I actually think of CalPERS as the MOB BOSS that protects and enforces all the other crooked union members that rely on extorting money from taxpayers by deferring debt, using taxpayer contributions to sue any city that challenges their BS claims of supreme being, and charging interest rates of 7.75% for debt they helped to create but no they can’t recoup (except by taxing cities at exorbinant rates while also charging 7.75% interest – who gets that these days), while denying their scheme is heading toward what amounts to a nuclear meltdown. How have the last 17 months gone?

    Unions/CalPERS = CROOKS/idiots!

  13. spension Says:

    All sorts of other government employees transfer in from other states… why not reform the system by aligning our training with that in other states so we open up the pool of applicants? Hard to believe cops in other states wouldn’t jump at 3% @ 55.

  14. SeeSaw Says:

    Cops from other states will have to go through the Academy in CA. That’s what Antioch is trying to avoid.

  15. SeeSaw Says:

    Captain, union members are ordinary, people just like you and everybody else. There is no need to call people you don’t even know, and have no evidence, “Crooks”!

  16. captain Says:

    “spension Says:

    All sorts of other government employees transfer in from other states… why not reform the system by aligning our training with that in other states so we open up the pool of applicants? Hard to believe cops in other states wouldn’t jump at 3% @ 55.”

    Spension, Ca already pays better, provides better better benefits & pensions, and has plenty of applicants. The only people that are claiming they can’t fill positions at these exorbinant pay packages are the unions that are trying to convince the public that there safety depends on paying more PAYOLA. In actuallity there are plentty of applicants for what has become a non-growth occupation (at least in CA).

    From a column called “The State Worker” which appears in the Sacramento Bee:

    “The diminished pensions may affect recruitment of some already hard-to-entice professionals, such as lawyers, who earn more in the private sector.

    Other jobs more accessible to the public probably won’t be affected. The Highway Patrol anticipates 60,000 online applicants next month for its cadet academy. Caltrans’ highway maintenance worker eligibility list has 20,000 names.”

    Read more here: http://www.sacbee.com/2012/12/06/5034572/the-state-worker-pension-benefits.html#storylink=cpy

  17. captain Says:

    SeeSaw Says: “Cops from other states will have to go through the Academy in CA. That’s what Antioch is trying to avoid.”

    SeeSAW, what Antioch city management is trying to avoid is how to explain to the citizenry all the mis-management that has been going on at great expense to the community, and how the Antioch PD controls the city council.

    You do know they’ve released half their PD civilian staff which is paid half the compensation of sworn staff, and replaced those people with sworn officers at twice the cost – even though the officers don’t know what they’re doing when confined to a desk and do NOT want to be there. And Antioch already pays the sworn staff more than all but a few departments in the entire nation.

    There is little doubt that the issue regarding trained officers (laterals) is nothing more than an effort to absorb displaced officers from other jurisdictions at great expense to Antioch residents. Antioch city management is just clueless because these issues about staffing are nothing new.

    I’ve been predicting an impending Antioch bankruptcy for over two years now and I’ve seen nothing to change my opinion. It’s a matter of when, not if.

  18. SeeSaw Says:

    I’m in So. CA and know no more about the inner workings of the City of Antioch than what is presented in this article, in regards to the fact that it desires to hire lateral transfers instead of hiring inexperienced applicants, which would require more funding for training.

    Don’t know what information you are using to judge CalPERS as corrupt and public employees, as idiots. All opinions–not facts.

  19. captain Says:

    Seesaw, I’m not calling public employees idiots. I’m calling the public employee unions idiots.

    As for CalPERS, the level of corruption during the “pay to play scandal including “Fred’s friends” is really only the tip of the iceburg. What is even more troubling is the following:

    - A completely inexperienced B.O.D comprised of a majority of union members that have no business directing this pension fund, or controlling the hiring & firing responsibility of the CEO.

    - Girard Millar, a pension expert, writes about calPERS smoothing policy. Here is the link for those who may be interested: Pink Slips and Pension Red Ink: http://www.governing.com/columns/public-money/Pink-Slips-and-Pension-Red-Ink.html

    Here is an excerpt:

    “How high will this flood crest? Local employers are now skeptical that they have been told the full truth about how high their pension costs will ultimately surge. Unlike the vast majority of public pension funds, CalPERS uses a 15-year actuarial smoothing process that camouflages the genuine economic impact of market fluctuations. I have no issue with normal industry-standard actuarial smoothing periods of 5 years, in light of the average length of a business cycle — which is 6 years based on 14 recession cycles in the past 84 years. But the CalPERS process is opaque and flunks the transparency test that taxpayers, public managers and municipal bond investors are entitled to expect. As I have explained before, such extraordinary “smoothing” practices deserve SEC investigation as an “artifice and device” to conceal relevant financial information from the investment community — as well as the employers who must now bear the financial brunt of unsustainable pension benefits.”

    - CalPERS Chief Investment Officer Dear said,” I was advised not to be so pessimistic on my point forecast.” Who advised the CalPERS CIO of being anything less than honest? That should be a concern of everyone.

    - Outgoing CalPERS board member rips earnings
    December 19, 2011 – “board member Dan Dunmoyer asked if CalPERS will be able to hit its earnings target of 7.75 percent during the next decade (current decade) and 8.5 percent in the following decade.” It is difficult to understand how anyone can project 7.75% returns this decade given the below median returns of 5.4% over the past ten years – that have gotten worse since this 9/30/2011 report, with projections of 8.5% returns next decade. I wouldn’t give a sheet if they were projecting 20% returns if they were GAMBLING their own money but they aren’t. They are GAMBLING taxpayer money.

    - CalPERS actuary: pension costs unsustainable:

    “Ron Seeling, the CalPERS chief actuary, described the process used to “smooth” the rate increases that will be imposed on the 1,500 local government agencies in CalPERS in 2011 in the wake of the stock market crash.

    Instead of a rate increase of 4 to 20 percent of pay, the smoothing will reduce the rate hike to a more manageable 0.5 to 2 percent of pay.

    “I don’t want to sugarcoat anything,” Seeling said as he neared the end of his comments. “We are facing decades without significant turnarounds in assets, decades of — what I, my personal words, nobody else’s — unsustainable pension costs of between 25 percent of pay for a miscellaneous plan and 40 to 50 percent of pay for a safety plan (police and firefighters) … unsustainable pension costs. We’ve got to find some other solutions.”

    The CalPERS projections:

    -Zero cost to cities for ten years (until 2009)
    -Dow of 25,000 by 2009

    In 2005 CalPERS changed their smoothing policy from 3 to 15 years because the writing was already on the wall.

    In 2009, or 2010, they increased their smoothing policy to 30 years (amortization), while expanding their corridor to allow for more smoothing by amortizing most of the 2007-09 market losses over 30 years.

    CalPERS continues to claim average pensions are 30K, even though they know the numbers don’t reflect the current reality of career employees/ retirees that are retiring under the enhanced pension formulas and accelerated compensation (past ten years).

    As long as CalPERS wants to make disingenuous claims I’ll be happy to call them out on their BS.

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