SAN FRANCISCO — UC Regents may vote on a costly retirement reform plan next month that officials say will not only lower benefits, but could squeeze faculty recruitment, research and medical centers for two or more decades.
An institution known for its prized collection of intellects did something two decades ago that in hindsight now seems unwise. It stopped making employer-employee contributions to the pension system, getting by on strong investment earnings.
A staff report to the Regents in September said that if normal contributions had continued since 1990, the University of California retirement system “would be approximately 120 percent funded today.”
But as of last July the system was 73 percent funded using the market value of assets and 87 percent funded on an actuarial basis, which spreads gains and losses over five years and won’t fully reflect the 2008 stock market crash losses until 2013.
“The idea of having a defined benefit and not paying into it is insanity,” Richard Blum told his fellow Regents at a meeting this month. He said he began urging that contributions be restarted several years ago.
A Regents faculty advisor, Dan Simmons, said the current problem is the result of failing to resume contributions seven or eight years ago. He said a faculty task force and others urged a restart “I think even before Regent Blum began pushing that issue here.”
Action by the Regents restarted contributions last April with 2 percent of pay from employees (if bargained with unions) and 4 percent from the university, expected to grow respectively to 5 and 10 percent by 2012.
The regents may vote Dec. 13 on a long-term plan that would cut costs in two ways — lower pensions for new hires and lower retiree health coverage for new hires and more than half of current employees.
The heart of the plan to restore the UC Retirement Plan’s funding level, and begin erasing a $12.9 billion unfunded liability, is an increase in the UC employer contribution to about 20 percent of pay, which would be roughly $1.5 billion in the current budget.
After the UC employer contribution reaches 10 percent of pay in 2012, the plan calls for UC to increase its contribution by 2 percent of pay per year until reaching the goal of about 20 percent of pay.
Where will the money come from?
UC would like to get state funds for retirement, like California State University and the community colleges. But one of the consequences of stopping contributions two decades ago is that UC retirement is not part of the state budget.
Now the timing for getting UC retirement back into the state budget could not be much worse.
Nonpartisan Legislative Analyst Mac Taylor estimated earlier this month that the state has a $25 billion budget shortfall with no relief in sight. He expects shortfalls of about $20 billion in each of the next five years.
UC is making some progress with the Legislature. Language in the state budget last year declaring that there would be no new general fund spending on UC retirement was deleted in the current budget.
A provision in the current budget directing UC to prepare a long-term retirement funding plan, with a proposal for state contributions, was vetoed by Gov. Schwarzenegger.
“Based on discussions with UC, however, we estimate that their proposal could call for state general fund contributions exceeding $400 million annually by the end of the (five-year) forecast period,” said the Legislative Analyst’s budget outlook.
UC Regents meet in San Francisco this month
UC officials say not getting state money is a triple hit on the retirement system. The state provides a third of the UC budget. The rest comes from medical centers, federal sources, grants and other operations.
Without an increase in the state share, UC cannot equitably raise retirement contributions from the other two-thirds of its operations. So every $1 not received from the state costs UC an additional $2 from other sources.
To restart the employer contribution this year with 4 percent of pay, UC dipped into other funds, using student fees and “redirecting campus resources,” the September staff report said.
For additional contributions UC is exploring several possibilities, including restructuring debt and borrowing at low interest rates from its pool of short-term investments.
That appears to be a better solution than a $4.5 billion pension bond suggested by the Academic Senate, the UC chief financial officer, Peter Taylor, told the Regents. He said he may give the Regents a specific funding proposal in March.
“We are modeling sustained 20 percent employer contributions, which is a very high number and will be an enormous impact on the operating budget of our campuses for the next 20 years,” Taylor said.
He said if UC employment is flat, rather than growing at 1 percent as the model assumes, the high contributions could continue for an additional decade. UC also assumes investment earnings will average 7.5 percent, which some think is too optimistic.
UCLA Chancellor Gene Block gave the Regents some examples of the impact of high retirement contributions: reduced faculty recruitment, less staff support, potential cuts in research and outreach, and tighter operating margins for medical centers.
“I believe there is an opportunity for UCLA and other campuses to mitigate some of the potential damage to the campus by enhancing our current revenue sources,” Block said.
“However, this is a breath-taking cost to our campuses and for many years in the future we are going to have to be dealing with making up for a very large change in our operating revenues,” he said.
Under the cost-cutting parts of the reform plan, UC support for retiree health insurance would drop from 89 percent of the cost to 70 percent. About 45 percent of current workers would not be affected by the change.
The minimum retirement age for employees hired after July 1, 2013, would be extended from 50 to 55 and the age for maximum benefits from 60 to 65. The start date is delayed to provide time to negotiate with 28 labor bargaining units.
The pension formula for the new hires (current workers have vested pension rights protected by the courts) would be 2.5 percent of the highest three-year average for each year served at age 65, not at age 60 as for current workers.
UC officials said the pension for new hires is less generous than the pension benefits for most state workers and teachers. Unlike UC and state employees, members of the California State Teachers Retirement System do not receive Social Security.
New hires would contribute 7 percent of pay to the retirement system, and the UC employer would contribute 8.1 percent of pay. From 1976 to 1990 when contributions stopped, said a staff report, employees contributed 5 to 7 percent of pay and UC as much as 16.37 percent.
Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at https://calpensions.com/ Posted 29 Nov 10
Calpensions 
November 29, 2010 at 3:11 pm
Reduce the pensions for FUTURE years of service for CURRENT (years CURRENT) employees.
Outrageous, you say ! Well, such changes are ROUTINE in Private Sector Pension Plans. What makes you Public Sector employees so “special” ?
November 29, 2010 at 4:22 pm
Action by the Regents restarted contributions last April with 2 percent of pay from employees (if bargained with unions) and 4 percent from the university, expected to grow respectively to 5 and 10 percent by 2012
==============
Wow, a whopping 2%!!!!!
It should be 10%, from right now, and the gov should eb matching on a 1-1 basis, not 2-1, that’s how it works in the real world with SS.
November 29, 2010 at 4:48 pm
You are wrong Rex, you pay both halves of SS. You may not know it, but your employer does. He has a bottom line profit he has to make and his half of SS comes off the top of the salary you would have made. Either that or he raises prices to cover it, or he goes out of business. In any event, your employer does not pay it.
November 29, 2010 at 7:27 pm
Charles, No matter how you spin it the bottom-line does not change ….
When total compensation (cash pay + benefits + pensions) are compared for similar jobs, for 95+% of jobs, it is much greater in the Public sector.
Perhaps not greater (but certainly not less) even for professional occupations such as doctors, lawyers and Professional Engineers such as yourself (as you have reminded us over & over & over again).
November 29, 2010 at 10:47 pm
WORSE THAN BERNIE MADOFF – COLORADO’S 2010 PENSION THEFT.
What do the Colorado Legislature and Bernie Madoff have in common? Both stole retirement benefits that were earned over many decades.
We have 80-year old widows in Colorado, who worked hard for the State for thirty years, who trusted the State and made their pension contributions like clockwork for decades, only to see their contracted retirement incomes stolen by the State. This money was taken out of their pockets because the State failed to make pension contributions as recommended by their own actuaries, to the tune of $2.7 billion in the last seven years. If the state had responsibly followed the recommendations of its actuaries, the PERA trust funds would now be more than 90 percent funded. The Colorado pension shortfall is primarily a result of legislative action over the last decade, Bill Owens, et al, in 2000 cut contributions and allowed the purchase of cheap service credit, and now the Legislature wants retirees to bear the cost of legislative ineptitude. In testimony to the Legislature even the proponents of the reform bill acknowledged this historic under-funding of the pension. PERA claims that the pension fund was unsustainable without their actions, because the funded ratio of the pension stands at 68 percent. However, the funded ratio of the pension was in the low 50 percent range in the 1970s, and the pension still exists. If a funded ratio of 68 percent this year is unsustainable, how has the pension been sustained since the 1970s when the funded ratio was in the 50s? Not much of a rationale for breaking retiree contracts.
If you find yourself short on funds, you rearrange your spending priorities, or raise additional revenue, YOU DON’T BREAK CONTRACTS! Why would the Colorado Legislature choose to break pension contracts before breaking other contracts, such as construction contracts? How can a state that is in default, that breaks contracts, maintain its credit rating?
The fact that what Colorado did to public sector employees in this year’s pension reform bill (SB1) cannot be done to private sector employee pensions under I.R.C. Section 411(d)(6), says quite a lot about the moral underpinnings of SB1. This federal “anti-cutback rule” for private sector DB plans permits changes to the plans only if the changes operate on a prospective basis.
Colorado PERA’s actions make it clear that the time has come for the inclusion of public defined benefit plans under all Internal Revenue Code Qualified Plan requirements. It is now obvious that allowing the states to regulate public defined benefit plans does not afford equal protection to state and local government employees.
PERA has put it in writing in pension plan materials over the years, that the COLA “is guaranteed”. Members purchasing service credit gave PERA thousands of dollars based on these materials. Money that they could have left in their 401Ks. PERA officials now claim that the members cannot rely on their pension plan documents regarding their defined benefits. However, Goldman Sachs recently paid a half billion dollar settlement to the SEC based on promises made in plan documents. Apparently, some judges believe that plan documents can set forth contractual terms. In any event, the contractual pension language is set forth clearly in Colorado law.
Colorado’s retiree COLA (and those of 36 other states) are “automatic COLAs” as opposed to “ad hoc COLAs” (which exist in about a dozen states and can be periodically altered.) Colorado’s COLA of 3.5 percent is guaranteed in Colorado law in an identical fashion to the base retirement benefit itself. So, the PERA retiree’s claims are based on both statutory language and plan documents. This 3.5 percent COLA won’t look so hot in the coming years if inflation spikes.
The Colorado pension reform bill’s (SB1) proponents should accept that states cannot legislate away a debt for work that was completed in the past. What the state is attempting is a claw back of deferred pay. The bill’s sponsors should accept that states cannot avoid their contractual obligations simply because they prefer to spend resources on alternative public services or obligations.
Some pension reform advocates argue that public sector pensions should be held to the same standards as private sector pensions. My response to that is “I agree wholeheartedly!” Under the federal Internal Revenue Code reducing accrued pension benefits for private pensions is illegal. If the public sector PERA pension were covered under this I.R.C. law and held to the same standards as private pensions, then last February’s theft of accrued benefits by the Colorado Legislature would not have been attempted. Essentially, federal law provides higher protection to private pensions than it does to public sector pensions. Public pension members are forced to appeal to the courts to prevent the theft of their benefits. (Happening.)
Members of the Legislature pointed out many times, to no avail, that the so called “pension reform bill” was a violation of contracts to which the State was a party. Here are some examples (on tape from the floor debate):
Rep. Lambert: “I have heard from my constituents, as many of you have, that this proposal will breach retiree’s contracts.”
Rep. Swalm: “We’re breaking new territory in this state by trying to reduce the COLA. We’re probably going to get a lawsuit out of that. If we cut the 3.5 percent COLA there will be a lawsuit.
Rep. Gerou said that it is a disservice to the state to rush a bill through when her committee knew that it will go to litigation, and said what we are doing to the retirees is wrong.
Rep. Delgroso said that it is tough for him to tell people that he is going to break their contract.
Senator Harvey said “We have made a commitment. We have a contract with current retirees. That is already in place. Reforms should be made for new hires. We do not have that commitment to new hires.
Senator Spence said “The bill places an unfair burden on retirees.”
Senator Scheffel said “We are breaching our promises to existing retirees.”
Senator Lundberg said “This bill is a deal that was cut before this body met.”
The cavalier abandonment of contractual obligations brings shame to the state of Colorado, aligns Colorado with Third World countries like Bolivia. No person, Republican or Democrat should countenance the breach of contracts. Conservatives support contract law as the foundation of capitalism.
So, why is the SB1 theft more egregious than the Madoff theft? The Colorado Legislature stole money from retirees who are less well off than Madoff’s pre-qualified hedge fund clients.
The Madoff victims were taking risks to seek a higher return on their investments, the Colorado PERA victims simply trusted that their contracts would be honored.
Colorado PERA and the Legislature justified their theft on false premises, citing 2008 market numbers when they knew the markets had recovered approximately 20 percent in 2009. PERA’s General Counsel stated on tape before the 2010 legislative session began that he expected a pension return “north of 15 percent”) for 2009.
It appears that Colorado PERA used the very resources of PERA members to hire a team of lobbyists (up to a dozen) to take earned benefits from those same members. That’s just insane.
Many members of the Legislature acted in ignorance. Spoonfed by the lobbyists, they ignored the legal rights of PERA retirees, and swallowed whole without question the assertions of PERA’s CEO and its chief legal counsel. If the members had read any case law, (for example, the state defined benefit pension case law summary by Prof. Amy Monahan at the University of Minnesota School of Law, Google it!), or even the 2004 Colorado AG opinion on pension benefits (retiree benefits are inviolate) they would not have supported the bill.
PERA’s own General Counsel was quoted in a 2008 Denver Post article as follows: “The attorney general’s opinion seems clear that fully vested employees — those retired or with enough years of service to retire — cannot see any benefits reduced, including cost-of-living adjustments, Smith said.”
Although members of the Colorado PERA Board of Trustees are fiduciaries, charged to act only in the interests of the members and the retirees, they recommended SB1, acting primarily in the interests of PERA employers who were concerned with keeping their contribution rates low.
Adding insult to injury the Legislature stole more money than it needed. The pension theft bill sought to increase PERA’s funded level to 100 percent, although an 80 percent funded level is considered well-funded among pension experts. You don’t have to pay off your mortgage tomorrow, and PERA doesn’t have to pay off all of its pension obligations tomorrow.
There were many other options available to address the pension shortfall, options that have been adopted, or are under consideration in dozens of states. See the legal, prospective pension reform that was accomplished in Utah this year.
Members of the Legislature have taken an oath to uphold the constitution and yet voted to violate the Contract Clause and the Takings Clause. Proponents of the bill refused to see that the retiree COLA (annual benefit increase) is set forth in Colorado law with the same force, status and weight as is the base retirement benefit. Only tortured legal reasoning, and wishful thinking, lead them to believe otherwise.
The Legislature had the ability to investigate the legality of its actions up front, but chose to act with no legal advice. Throughout the floor and committee debates on SB1 the members displayed an ignorance of, or an intentional disregard for the relevant case law. They failed to conduct the due diligence expected of an elected body. State legislatures across the nation are examining the legal limitations on their actions regarding pension reform, exploring all legal options prior to acting. (PERA claimed to have a legal opinion to justify their actions, but never released it.)
PERA has been disingenuous by claiming that the reform bill represents “shared sacrifice” among employees, employers, and retirees, by not making it clear that retirees bear most of the burden of their proposed reforms, for many retirees the confiscation of benefits will reach one-quarter of their total retirement benefits received over the rest of their lives. In debate, the bill’s sponsors said that retirees would bear 90 percent of the cost of the reform. In any event, I am not relieved of my contractual obligations just because someone else has better terms in their contract. The entire premise is ludicrous.
While ignoring its own contractual pension obligations (underfunding of $2.7 billion in the last seven years according to PERA’s own actuaries) the State of Colorado has pumped half a billion dollars into pension obligations that are not its responsibility, those of local governments (Old Fire Police Pension obligations).
The Legislature made a pact with unions to support the “pension reform bill” (SB1) to protect union jobs. Incredibly, these union members tossed their former members, their retired “brothers” under the bus. From the beginning the plan was “let’s steal the money we need from retirees.”
Finally, Madoff eventually admitted to his crime, but the Colorado General Assembly is still pretending that their theft of pension benefits is something to be celebrated. They tout it as a “bi-partisan accomplishment. This will be a long-standing embarrassment to and black mark on our state.
November 30, 2010 at 12:00 am
Algernon Moncrief, a few comment on your thesis …
(1) Quoting …”Bill Owens, et al, in 2000 cut contributions and allowed the purchase of cheap service credit, and now the Legislature wants retirees to bear the cost of legislative ineptitude.” IF THE EMPLOYEES GOT AN UNFAIR (TO TAXPAYERS) BARGAIN VIA THE A CHEAP PRICE FOR SERVICE CREDITS, IT SEEMS QUITE APPROPRIATE FOR THESE EMPLOYEES/RETIREES TO “MAKE UP” FOR WHAT THEY SHOULD HAVE PAID IN THE FIRST PLACE.
(2) Quoting …”The fact that what Colorado did to public sector employees in this year’s pension reform bill (SB1) cannot be done to private sector employee pensions under I.R.C. Section 411(d)(6), says quite a lot about the moral underpinnings of SB1. This federal “anti-cutback rule” for private sector DB plans permits changes to the plans only if the changes operate on a prospective basis.”
IRS RULES FOR PRIVATE SECTOR PLANS ALSO CLEARLY ALLOW THE PENSION FORMULA FOR CURRENT (YES CURRENT) EMPLOYEES TO BE REDUCED FOR FUTURE YEARS OF SERVICE. IN FACT, SUCH REDUCTIONS ARE COMMONPLACE IN PRIVATE SECTOR PLANS. YOU CAN’T HAVE IT BOTH WAYS (THE COLA CHANE WAS QUITE MINOR)…. SO I GUESS YOU WOULD SUPPORT A FORMULA REDUCTION FOR FUTURE SERVICE FOR CURRENT WORKERS ???
(3) Quoting …”Although members of the Colorado PERA Board of Trustees are fiduciaries, charged to act only in the interests of the members and the retirees, they recommended SB1, acting primarily in the interests of PERA employers who were concerned with keeping their contribution rates low.”
YOU ARE INCORRECT, PERA TRUSTEES SHOULD BE CORRECTLY ADMINISTERING THE PLAN PROVISIONS AND INVESTING PLAN ASSETS WITH FIDUCIARY RESPONSIBILITIES. IT HAS NO OBLIGATION, NOR SHOULD IT SEEK TO ACT IN THE BEST INTERESTS OF PLAN PARTICIPANTS, WHICH ARE OFTEN AT ODDS WITH THOSE OF TAXPAYERS WHO FUND THESE PLANS
November 30, 2010 at 1:14 am
Algernon Moncrief, a few comment on your thesis … (PART 2)
(4) Quoting …”Adding insult to injury the Legislature stole more money than it needed. The pension theft bill sought to increase PERA’s funded level to 100 percent, although an 80 percent funded level is considered well-funded among pension experts. You don’t have to pay off your mortgage tomorrow, and PERA doesn’t have to pay off all of its pension obligations tomorrow.”
THE STATEMENT THAT 80% FUNDING LEVEL REPRESENTS A WELL-FUNDED PLAN IS LUDICROUS. IN FACT, UNDER THE 2006 PENSION LAW CHANGES FOR PRIVATE SECTOR PLANS COVERED BY ERISA, 80% IS CONSIDERED SO POOR THAT EXERCISE OF THIS OPTION IS RESTRICTED. 100% IS CLEARLY THE APPROPRIATE TARGET FUNDING LEVEL.
(5) Quoting …”Members of the Legislature have taken an oath to uphold the constitution and yet voted to violate the Contract Clause and the Takings Clause. Proponents of the bill refused to see that the retiree COLA (annual benefit increase) is set forth in Colorado law with the same force, status and weight as is the base retirement benefit. Only tortured legal reasoning, and wishful thinking, lead them to believe otherwise.”
REFERRING TO THE LAST SENTENCE …. WHY, BECAUSE YOU SAY SO ? LET THE COURTS DECIDE …. THAT’S WHAT THEY’RE HERE FOR.
(6) Quoting …”The Legislature had the ability to investigate the legality of its actions up front, but chose to act with no legal advice. Throughout the floor and committee debates on SB1 the members displayed an ignorance of, or an intentional disregard for the relevant case law. They failed to conduct the due diligence expected of an elected body. State legislatures across the nation are examining the legal limitations on their actions regarding pension reform, exploring all legal options prior to acting. ”
REFERRING TO THE LAST SENTENCE … TRANSLATION … THEY’RE “KICKING THE CAN DOWN THE ROAD” AND DOING NOTHING (MOSTLY DUE A DESIRE FOR CONTINUED CAMPAIGN CONTRIBUTIONS AND ELECTION SUPPORT FROM PUBLIC SECTOR UNIONS).
(7) Quoting …” for many retirees the confiscation of benefits will reach one-quarter of their total retirement benefits received over the rest of their lives.”
THE COLA LIMITATION IS LIKELY A 10-25% REDUCTION, BUT CONSIDERING THAT THE EMPLOYER (MEANING TAXPAYER) PAID-FOR SHARE OF THE TYPICAL PUBLIC SECTOR WORKER’S RETIREMENT PACKAGE (PENSION + SUBSIDIZED RETIREE HEALTHCARE) IS 2-4 TIMES THAT OF THE EMPLOYER PAID-FOR SHARE OF A COMPARABLY PAID PRIVATE SECTOR WORKER RETIRING AT THE SAME AGE AND WITH THE SAME YEARS OF SERVICE (AND WITH THAT 2-4 TIMES RISING TO 4-6 TIMES FOR SAFETY WORKERS), THIS DOESN’T EVEN BEGIN TO LEVEL THE PLAYING FIELD BETWEEN PUBLIC AND PRIVATE SECTOR WORKERS. TO DO SO WOULD REQUIRE MANY-FOLD GREATER REDUCTIONS IN PUBLIC SECTOR PLANS.
(8) Quoting …”While ignoring its own contractual pension obligations (underfunding of $2.7 billion in the last seven years according to PERA’s own actuaries) the State of Colorado has pumped half a billion dollars into pension obligations that are not its responsibility, those of local governments (Old Fire Police Pension obligations).”
INTERESTING. IF TRUE, A COURT ACTION SHOULD BE STARTED TO RECOVER THESE FUNDS. OBLIGATIONS TO “Old Fire Police Pension obligations” SHOULD NOT BE MET BY STEALING FROM ANOTHER PLAN.
(9) Quoting …”The Legislature made a pact with unions to support the “pension reform bill” (SB1) to protect union jobs. Incredibly, these union members tossed their former members, their retired “brothers” under the bus. From the beginning the plan was “let’s steal the money we need from retirees.”
AS THEY SAY, “YOU HAVEN’T SEEN ANYTHING YET”. JUST WAIT UNTIL (NOT IF, BUT WHEN) THE FUNDS START TO RUN OUT ….. ALL THE UNION “BROTHERS” WILL ONLY BE LOOKING OUT FOR #1. THE BIGGEST LOSERS WILL BE THE YOUNGER AND MID-CAREER WORKERS WHO WILL BE LUCKY TO JUST RECOVER THEIR CONTRIBUTIONS.
(10) FINALLY …. NOW THAT YOU GOT SOMEONE (ME) TO READ AND RESPOND TO YOUR THESIS …… will you PLEASE …. STOP POSING IT. HOW MANY TIMES NOW … 200, 300, 500 ???
November 30, 2010 at 1:18 am
Check out Calpers $100,000 club ; If you thought cops make the big coin, look up UC employees & some are pulling down $50,000 per MONTH! Outrageous.
November 30, 2010 at 1:39 am
Tough Love Says:
November 29, 2010 at 7:27 pm
Charles, No matter how you spin it the bottom-line does not change ….
When total compensation (cash pay + benefits + pensions) are compared for similar jobs, for 95+% of jobs, it is much greater in the Public sector.
Perhaps not greater (but certainly not less) even for professional occupations such as doctors, lawyers and Professional Engineers such as yourself (as you have reminded us over & over & over again).
Thanks for that. A forty year old deal is still a deal.
November 30, 2010 at 1:41 am
By the way, why are comments date stamped with UTC time?
November 30, 2010 at 1:48 am
Just for clarification ……. in # (4) in my (part 2) comment responding to Algernon Moncrief, the words “EXERCISE OF THIS OPTION IS RESTRICTED.” should have been “EXERCISE OF THE LUMP SUM PAYOUT OPTION IS RESTRICTED”
November 30, 2010 at 1:49 am
Tough Love Says:
November 29, 2010 at 7:27 pm
“Charles, No matter how you spin it the bottom-line does not change ….
When total compensation (cash pay + benefits + pensions) are compared for similar jobs, for 95+% of jobs, it is much greater in the Public sector.”
“Perhaps not greater (but certainly not less) even for professional occupations such as doctors, lawyers and Professional Engineers such as yourself (as you have reminded us over & over & over again).”
I have never disagreed with the fact that many blue collar workers in State Employment are paid more than private workers if you include benefits. And I will agree that the total wage plus benefit package for Engineers is not far under private. Now. What about the first 35 out of 40 years I worked for the State? Attorneys? Think again, they are way underpaid, period.
November 30, 2010 at 1:56 am
Charles, Point taken, but the fact that you (and all other Civil Servants) generally still have heavily subsidized retiree healthcare whlie 95+% of private sector workers (including attorneys, doctors and lawyers) have lost theirs, likely more than make up for this difference. Even more so for Civil Servants who retire before age 65 (Medicare eligibility).
November 30, 2010 at 2:06 am
Charles, Just a point re attorneys ……. those outside the profession think all attorneys work for major law firms and bill at $400-$600 per hour.
Far from the truth, most attorneys are in salary positions in corporations making no where near these figures, or in small firms that typically bill from $100-$250 per hour.
And typically, unless they are partners sharing in the Firm’s profits, the attorneys generally get paid about 1/3 of billings for the first 1500 billed hours annually. The % sometimes rises for billed hours over 1500 in one year.
It ‘s a bit like all the IT Civil Servant commenter on the blogs …. they all think an option open to them would be to work for Google. I really doubt that. The qualities Google looks for (brilliance, risk-takers, out-of-the-box thinkers) is hardly the person who works in Civil Service (no offense).
November 30, 2010 at 2:55 am
Incoming Caltrans attorneys make $4674 ($27 per hour)per month. After ten years they earn $7828 per month ($45 per hour).
1/3 of $100-$250 per hour for private sounds pretty good to me and if an attorney has worked in a legal firm for ten years and hasn’t reached your 1/3 of $250 per hour I don’t know what to say.
I don’t know anything about IT workers. I do know that brilliance, risk-taking, and out-of-the-box thinking were indeed necessary for Civil Engineers in Caltrans, especially those who worked in the field often hundreds of miles away from the office and who had to make immediate decisions. Up until cellphones we didn’t have immediate communications with our superiors. It was “do it” you can’t wait. No offense.
November 30, 2010 at 3:13 am
Charles, Billing 1,500 hours isn’t easy (lunches, bathroom breaks, going for coffee, chit chat, etc. doesn’t count … if you’re honest). Taking the midrange of $100-$250 or $175/hr, we have pay of 1/3 x 1,500 x $175 = $87,500/yr….. less than your $7,828/mo = $93,936/yr …. and without doubt the Private sector attorney isn’t getting a rich-formula DB pension.
November 30, 2010 at 3:16 am
Tough Love said
“IF THE EMPLOYEES GOT AN UNFAIR (TO TAXPAYERS) BARGAIN VIA THE A CHEAP PRICE FOR SERVICE CREDITS, IT SEEMS QUITE APPROPRIATE FOR THESE EMPLOYEES/RETIREES TO “MAKE UP” FOR WHAT THEY SHOULD HAVE PAID IN THE FIRST PLACE.”
Well, I have nothing to worry about here. I looked into this several years ago and figured out it would take at least 17 years after I retired to even break even on this. So I didn’t do it. $85K in todays dollars vs catching up much much later? Forget it.
November 30, 2010 at 3:26 am
Tough Love
Then you need to take the midrange also. $4674+$7828 divided by two = $6251 per month or $75,012 per year, leaving your private attorney with $12,488 per year to use for any benefits he wants to invest in. In addition to any bonuses, profit sharing or monies put into a 401K or private pension plan the employer already has.
November 30, 2010 at 3:29 am
Sounds like what you were offered didn’t include much of a discount. Some of the buyback offers I’ve heard are at 1/3 of the true actuarial value.
This is totally unjustified ….. simply a “gift” form taxpayers w/o their concurrence. No difference than just just handing out $50k, $100k, for $200k. Taxpayers would revolt if they really understood the financial implications of these giveaways.
November 30, 2010 at 4:00 am
Charles said ….
“Tough Love
Then you need to take the midrange also. $4674+$7828 divided by two = $6251 per month or $75,012 per year, leaving your private attorney with $12,488 per year to use for any benefits he wants to invest in. In addition to any bonuses, profit sharing or monies put into a 401K or private pension plan the employer already has.”
The point I was trying to make is that everyone seem to thing ALL private sector attorneys are make a bundle …. whether its $75k, $90K, $125k, etc. ….. MOST are not getting rich …. and the income necessary to duplicate the rich (and universal) public sector DB plans is typically 25%-40% of cash pay.
November 30, 2010 at 4:20 am
I repeat:
Tough Love
Then you need to take the midrange also. $4674+$7828 divided by two = $6251 per month or $75,012 per year, leaving your private attorney with $12,488 per year to use for any benefits he wants to invest in. In addition to any bonuses, profit sharing or monies put into a 401K or private pension plan the employer already has.
November 30, 2010 at 4:21 am
Sorry about the repeat, I fatfingered it.
November 30, 2010 at 4:36 am
“The point I was trying to make is that everyone seem to thing ALL private sector attorneys are make a bundle …. whether its $75k, $90K, $125k, etc. ….. MOST are not getting rich …. and the income necessary to duplicate the rich (and universal) public sector DB plans is typically 25%-40% of cash pay.”
The State has paid in as much as 18% of payroll in 1969, I know I was there, to about 18% now, with all years in between paying less, including 2000 to 2004 when they paid nothing or almost nothing.
November 30, 2010 at 5:10 am
Charles, Assuming you want to collect all that was promised you, it’s not what the state ACTUALLY PUTS IN that matters. It’s how much in total (including that contributed by employees) SHOULD BE PUT IN to fully fund the Plan (in some reasonable time frame) including payoff of current unfunded liabilities.
Using the MARKET VALUE of assets on hand today (not the “actuarially smoothed” value which does not account for much of the yet-unrecouped equity losses from 2008), and appropriate / reasonably conservative interest rates for discounting Plan liabilities and assumed investment earnings, California’s main Plans are roughly 60% funded (meaning 40% underfunded).
To FULLY FUND these Plans (in any reasonable time frame) will take roughly 40% of cash pay (not 18%).
Unless employees pay more, and/or the State (meaning taxpayers) pay more, and/or investment returns go through the roof, the money won’t be there to pay the promised benefits.
We know CURRENT workers neither want to pay more nor give up any benefits. W/o the huge investment returns, that leaves taxpayers as the balancing item.
Even with significant cuts in services past and future, I doubt taxpayers will agree to be the balancing item. Remember, California isn’t a Country like Greece or Ireland, it’s 1 of 50 States and many of it’s residents and businesses with the resources to pay more won’t …. they’ll just move away. The politicians are well aware of this and the resultant practical limitation it places on tax increases.
So how will it shake out ? ….. who knows ….. but it’s certainly going to be interesting to watch.