What’s really driving CalPERS contribution rates higher and higher
If public pensions are so modest, as the California Public Employees’ Retirement System (CalPERS) likes to suggest, why are taxpayer contribution rates continually being raised?
CalPERS insists raw averages — like the $46,100 pension the average Los Angeles-area retiree receives — is the clearest way to convey their value.
The implication — that pensions are comfortable, but not exorbitant — is hard to square with the dramatic rise in pension contributions currently impacting cities statewide.
Last year was the first of a six-year plan to hike cities’ rates by 50 percent, and now cities like Long Beach are considering slashing millions from police and fire services (link).
Full context provides clarity: Raw averages represent partial-career retirees, like the average 22-year career of Los Angeles-area retirees.
To compare, if a private-sector worker went to Fidelity Investments to purchase an annuity for that level of income at the CalPERS’ average retirement age of 60, it would cost $1 million. How many taxpayers have saved a million dollars after just a 22-year career, if ever?
Raw averages reveal more about CalPERS’ membership than its generosity — half retire with less than 20 years of service and more than a third had less than 15.
Just as one assumes a 40-hour work week when comparing salaries, any discussion of pensions implicitly assumes a full career.
When normalizing the data in that way — at least 35 years for regular and 30 years for safety retirees — the average full-career pension for all cities in Los Angeles County was over $75,000 for non-safety and over $100,000 for safety retirees, according to just-released 2014 CalPERS data from TransparentCalifornia.com (link).
Properly evaluating CalPERS’ benefits explains its soaring costs. While the median private employers contribute 3 percent of pay towards their employees’ retirement accounts, many cities in Los Angeles County pay over 10 times as much to CalPERS (link).
Glendale, for example, will send 30 cents per dollar of pay to CalPERS this year. El Monte’s 57 percent rate for safety employees means the City will spend an average $63,000 per employee just on retirement costs — nearly triple the $24,419 median earnings that full-time, working residents received last year, according to the Bureau of Labor and Statistics.
CalPERS projects that rate to hit 72 percent in 2019.
Sky-high public pension costs go beyond CalPERS. Los Angeles County pays a 19 percent contribution rate to the Los Angeles County Employees’ Retirement Association and Los Angeles City pays its two independent plans 23 and 35 percent of salary for non-safety and safety employees, respectively. Accounting for health benefits provided to city safety retirees increases the rate to 46 percent.
Clearly, the problem is the nature of public pension plans, not any particular administrator. In fact, even scholars at the left-leaning Brookings Institution asserted that, “It is obvious that the current situation is unsustainable financially … (link).”
Defenders of the status quo oppose reform because of the allegedly insufficient retirement income that a personal retirement-account plan would provide. Yet, there is nothing restricting governments from paying higher contribution rates than what private employers pay.
By offering personal retirement-account plans with an employer contribution rate starting at 10 percent, the Contra Costa cities of Danville, Lafayette and Orinda enjoy greater stability and control over costs than their neighbors, while successfully attracting and retaining quality employees, according to city officials (link).
Taxpayers work full careers before retiring and deserve to know the true value of a full-career public pension — particularly when it means they must now pay higher taxes, receive fewer city services or both.
Mod: One more thing. Sierra Madre's 2014 financial data is in. A quick glance didn't reveal too much out of the ordinary, overall employee compensation went up 3%, health costs came down a bit, but salaries and CalPERS offset it.
The only 2 people with any real noticeable gain was City Manager Aguilar and Chief of Police Giannone, who saw their base pay increase by about 9 and 13 percent respectively.
We'll have more on this in the next week or so.