Tuesday Aug 03 2010
Our View: $100K pensioners are poster children for a broken system
In Vegas, 21 is a great number. In fact, it’s a lock on a winning hand. In Placer County, 21 is the number of county retirees holding that winning hand – a guaranteed annual pension of $100,000 or more, as well as lifetime medical benefits. The list of six-figure pensioners isn’t just a county problem, however. The payroll atrocities in the city of Bell grabbed national headlines, but local cities like Roseville, Rocklin and Lincoln also are facing long-term financial liabilities to retired executives and managers, some of whom saw double-digit salary increases in the final few years of employment. It’s time to stop playing so loosely with taxpayer money. It’s time to bring reason and common sense back to the table. It’s time to fundamentally transform public pension programs at the city, county, state and special district levels. Reform must be approached from every entry point in the pension cycle – salary and benefits reform, longevity of service, investment return expectations – in order to rebuild a sustainable model that protects the public trust. It might not be as complex as health-care reform, but pension reform should be a priority at every level of government in California. A recent bill introduced by State Sen. Joe Simitian of Palo Alto is a start. Simitian’s bill would target “pension spiking,” or the practice of significantly increasing salary to game the pension amount. Currently, some governments and agencies allow one-time bonuses, late-career promotions and accrued vacation time to count toward salaries that are used to set annual pension payments. But such legislation is only a start. California’s long-term pension and benefits liability is pegged at more than $500 billion, and it grows larger with every retiree. The first target has to be government executive salaries. Every government entity should have an independent, citizen-based salary review committee, with accountability and transparency required. In times of fiscal crisis, salaries should be reduced. Salary caps should be instituted. There’s no reason a city or county executive or school district superintendent can’t survive on less than $150,000 a year. Eliminate perks such as credit cards, car and housing allowances, and certainly don’t allow them to be counted toward pension-setting salary. If they perform at a high level, provide an annual bonus that, again, can’t be counted as salary in pension formulas. Next, eliminate lifetime health benefits. No more. Hard-working people in the private sector find health insurance upon retirement, so why should hard-working public employees have such an advantage? Gov. Arnold Schwarzenegger has proposed a two-tier system in which current state employees would fall under the existing CalPERS retirement plan while new employees would pay a higher percentage of their pension and benefits, but that may not go far enough either. What’s needed is real reform, based on the ability of an investment system to pay a reasonable amount over a long period of time – not a guaranteed annual pension based on inflated investment expectations set during a period of false economy. Rather than basing pensions on returns of nearly 8 percent, as CalPERS actuaries did, CalPERS must reduce its risky investments and focus on delivering a more realistic return. That lower return would work into lower pension payouts across the board. Taking a page from Social Security, local governments should increase the minimum retirement age to collect a pension. An employee who retires at 55 and cashes a $100,000 annual pension would earn $3 million in retirement – more than they ever earned while working. That’s unfair to taxpayers, many of whom are still recovering from losing their nest eggs in the economic downturn. What did Placer’s 21 lose? Nothing. There once was a time that a pension – in government or the private sector – provided a livable wage for one’s twilight years. But earning more than $100,000 annually in retirement is not a livable wage, it’s excessive, unsustainable and riddled with risk.