Questions for Someone Who Supports Superior Benefits for Government Workers

“Without disputing the figures, Monique Morrissey, an economist with the Economic Policy Institute in Washington, D.C., said the findings are misleading because they do not compare specific classes of employees or account for differences in education levels and total hours worked.”
California Is Golden State For Public Employees, by Michael Carroll, AMI Newswire, Jan. 31, 2017

Ms. Morrissey has a point, even though there was no intent to “mislead.” While our recent study “California’s Public Sector Compensation Trends,” found that full-time public sector workers in California earn pay and benefits that average at least twice as high as their counterparts in the private sector, going into comparisons by specific class of employee was beyond the scope of that particular study. But Ms. Morrissey is missing the forest for the trees.

First of all, as acknowledged in Carroll’s article where Morrissey is quoted, the study found that California’s public employees earn pay and benefits that average 39 percent higher than their public sector counterparts in the rest of the U.S. So especially in California, we conclude there are two classes of workers – public sector workers, whose 2015 pay and benefits averaged $139,691 for full-time work (if you properly fund their pensions), and private sector workers, who, very best case, earned pay and benefits that averaged $62,475.

Everybody knows that public sector workers have, on average, higher levels of education than private sector workers. Should this translate into average (and median, by the way) total earnings that are twice what all private sector workers receive? It challenges credulity.

Ms. Morrissey’s biography states, “She is active in coalition efforts to reform our private retirement system to ensure an adequate, secure,and affordable retirement for all workers.” Bravo. That is a goal we share. And so in the spirit of aligning ourselves with practical, feasible, equitable objectives towards achieving that goal, Ms. Morrissey is invited to answer the following questions:

(1)  Do you think what public sector pensions (ref. CalPERS, the largest) pay to California’s government retirees should be three to five times what Social Security offers private sector retirees?

CalPERS pensions

(2)  The average current retiree pension – not including retirement health benefits – for a state/local government worker with 30 years of service is $67,762 per year (click on any pension system to see average per former employer). There are 10 million Californians over the age of 55, 25 percent of the total population. If all of them received a pension of $67,762 per year, that would cost $677 billion dollars, 32 percent of California’s aggregate personal income of $2.1 trillion. Do you think people who are retired should collect state-funded pensions worth more on average than the earnings of people who work? Do you think this is feasible?

(3) Defenders of unaltered state/local government pension benefits in California argue that pension benefits are primarily paid for via investment returns. But they claim investment returns can average 7.5 percent per year (4.5 percent after adjusting for inflation), “risk free.” Are YOU, Ms. Morrissey, willing to personally guarantee that MY retirement investments will earn this much? Because if you are, I’ll invest every penny I’ve got with you.

(4) Our “apples-to-apples” comparison of California’s new “Secure Choice” pension option for private citizens yielded the following comparisons: (a) Public sector: Teachers/Bureaucrats, 30 years work – pension is 75 percent of final salary. (b) Public sector: Public Safety, 30 years work – pension is 90 percent of final salary. (c) Private sector: “Secure Choice,” 30 years work – pension is 27.6 percent of final salary. Do you think this disparity is fair to private sector workers?

(5) Can you explain why public sector pensions are not subject to the same conservative funding and investing rules as private sector pensions are under ERISA?

(6) Do you support government programs that offer ALL American workers the SAME retirement benefits, subject to the SAME formulas and incentives, or not?

In reference to our recent CPC study, Ms. Morrissey is also on record as saying, “There have been a lot of attacks on public-sector unions because their members have been a stalwart voting block for the Democratic Party, but that doesn’t mean they’re overpaid.” This remark suggests Ms. Morrissey thinks nonpartisan “attacks” on government unions aren’t justifiable and won’t happen. That is incorrect.

Government unions, unlike private sector unions, have the ability to negotiate for financially unsustainable pay and benefits because they control their bosses through campaign contributions, because their bosses are politicians instead of business people, and because these pay and benefit packages are paid for through coercive taxes instead of via allocations of precarious profits.

Government unions have created two tiers of workers in this country. Government workers not only have unaffordable pay and retirement security, but their union leaders have an incentive to support government policies that destabilize and divide this nation, because that will create the need for even more unionized government workers. Government unions, intrinsically, are economically damaging and politically authoritarian.

“Unsustainable” means that sooner or later an end will come. When the money is gone, Morrissey and her gang will have a lot more questions to answer.

Ed Ring is the director of policy research for the California Policy Center.

When city retirement pays better than the job

One in four El Monte residents lives in poverty. Yet taxpayers pay a steep price to fund bonus pensions and other perks for city workers.

As reported by the Los Angeles Times:

James Mussenden doesn’t bring up his pension in casual conversation. No point getting his golf partners’ blood boiling.

The retired city manager of El Monte collects more than $216,000 a year, plus cost-of-living increases and fully paid health insurance.

“It’s giving me an opportunity to do a number of things I didn’t get to do when I was younger, like travel to Europe, take some things off my bucket list,” Mussenden, 66, said recently. He even flew to Scotland to play the famed Old Course at St. Andrews, a mecca for golf enthusiasts.

Mussenden recognizes that few Americans have pensions anymore — least of all the El Monte taxpayers who are funding his retirement. So while he enjoys his monthly retirement check, he’s discreet about it. …

Click here to read the full story

Association of Pension Funds Blacklists Reform Organizations

pensionIn an press release from the National Conference on Public Employee Retirement Systems dated December 19, 2016, the California Policy Center, and its spinoff online publication, UnionWatch, were both chosen, for the 2nd year in a row, as one of only 28 “policy and research organizations” that NCPERS has deemed to be “Think Tanks that Undercut Pensions.” Ponder the significance of this excerpt from that same press release: “Under the Code of Conduct, NCPERS urges its corporate members to disclose whether they contribute to these organizations.”

What exactly were the transgressions of the California Policy Center, and UnionWatch, that earned them a place on this list of undesirables? That earned them an admonition from NCPERS to its corporate members to boycott us, or else? Here is their list of criteria – and, briefly, our response:

How to be a think tank that gets blacklisted by NCPERS:

(1) Advocate or advance the claim that public defined-benefit plans are unsustainable.

Guilty. Public pension funds cannot possibly withstand the next market downturn. Unaltered, they will either bankrupt public institutions or cause taxes to be raised to punitive levels.

(2) Advocate for a defined-contribution plan to replace a public defined-benefit plan.

Not guilty. Our organization does recognize, however, that defined-contribution plans may be the only recourse, if significant changes are not made to restore financial sustainability to defined-benefit plans.

(3) Advocate for a poorly designed cash-balance plan to replace a defined-benefit plan.

Not guilty. We have not invested our resources in serious review of this policy option.

(4) Advocate for a poorly designed combination plan to replace the public defined-benefit plan.

Guilty, except that, of course, we believe a well designed combination plan could work. An example of this, fruitlessly advocated by California Governor Brown, is the “three legged stool” solution: A modest, sustainable pension, participation in Social Security, and a 401K savings plan with a modest employer contribution.

(5) Link school performance evaluations to whether a defined-benefit plan is available to teachers and school employees.

Not guilty. While it is probably true that providing teachers with the golden handcuffs of back-loaded pension benefit formulas guarantee the poor performers will stay on the job while those with talent will be more likely to pursue other employment options, we have not done any investigative work in this area. We applaud those who have.

More to the point, we applaud any corporate interest with the courage to stand up to American’s government union controlled pension systems by supporting pension reform organizations. They have a lot to lose.

Anyone who needs evidence to back up our assertion that government pension systems are joined with powerful financial special interests should consider the relationships between NCPERS – the “National Conference On Public Employee Retirement Systems” – and their “corporate membership.” NCPERS describes itself as “the principal trade association working to promote and protect pensions by focusing on Advocacy, Research and Education for the benefit of public sector pension stakeholders.”

NCPERS helpfully discloses those 36 corporations who have purchased the “enhanced level of corporate membership,” and it includes some of the most powerful financial firms on earth. To name a few: Acadian Asset Management, BNY Mellon, Evanston Capital Management, J.P. Morgan, Milliman, NASDAQ, Nikko Asset Management Americas, Northern Trust, Prudential Insurance Company, State Street Corporation and Ziegler Capital Management.

One would think corporate members with this much clout would mean the tail wags the dog, but NCPERS is a very big dog. As the political voice for nearly all major state and local public employee pension systems across the entire U.S., their lobbying muscle is backed up by nearly $4 trillion in invested assets. At one of their recent conferences, Chevron was a “platinum sponsor.”

Will Chevron ever oppose the lobbying agenda of NCPERS? Probably not. According to Yahoo Finance, BNY Mellon owns 1.34 percent of Chevron’s stock, Northern Trust owns 1.35 percent, and State Street Corporation owns 4.7 percent. That’s just the holdings of the NCPERS “enhanced members.” Moreover, pension systems don’t just invest through intermediaries such as BNY Mellon, they invest directly in these corporations. There is no financial special interest purchasing publicly traded U.S. stocks that is bigger than the pension fund members of NCPERS, and there is no client to the financial firms on Wall Street bigger than the pension fund members of NCPERS. Nothing comes even close.

No report on NCPERS would be complete without documenting just how thoroughly it is dominated by public sector and union operatives. Their president “served 3 terms on the Chicago Fire Fighters Union Local 2 executive board, resulting in two decades of union leadership.” Their first vice president, a retired police officer, “served as the first woman president of her union, FOP Queen City Lodge No. 69, from 2005 through 2015.” Their second vice president “is currently the statewide president of AFSCME Council 67, representing well over 30,000 members in 21 separate political jurisdictions.” Their secretary “has more than 30 years of service as a Tulsa public employee.” Their treasurer “served as a firefighter for 41 years. During his career, he held offices on the board of the IAFF Local 58.” Their immediate past president “is the treasurer of the United Federation of Teachers (UFT), Local 2, American Federation of Teachers (AFT).”

That’s everyone. The entire management team of NCPERS. A government union controlled financial juggernaut, marching in lockstep with the most powerful players on Wall Street. The consequences are grim for the rest of us.

Public employee pension funds are aggressively attempting to invest nearly $4 trillion in assets to get a return of 7.0 percent per year. Collectively, they are underfunded – according to their own estimates which use this high rate of return – by at least $1 trillion. And by nearly all conventional economic indicators, today we are confronting a bubble in bonds, a bubble in housing, and a bubble in stocks. The alliance of financial special interests who don’t want this party to end, and government union leaders who don’t want to lose retirement benefits that are literally triple (or more) what private sector taxpayers can expect, is complicit in policies that have allowed these asset bubbles to inflate. When the bubbles pop, they will share the blame.

In the meantime, they blacklist those of us who call attention to their folly.

Ed Ring is the vice president for policy research at the California Policy Center.

L.A.’s Unfunded Pension Liability Explodes to $15 Billion. Leadership Nowhere To Be Found

Photo courtesy of channone, flickr

Photo courtesy of channone, flickr

LA WATCHDOG — Our enlightened elite who occupy Los Angeles City Hall tell us that pension reform is not necessary. After all, the recent actuarial report for the Fire and Police Pension Plan indicated that its $19 billion retirement plan was 94% funded as of June 30, 2016.

But as we all know, figures never lie, but liars figure, especially when it involves the finances of the city of Los Angeles.

The city will say that a pension plan that has assets equal to 80% of its future pension obligations is in good shape.  Baloney! Pension plans should aim to be 100% funded, especially in down markets. And in today’s bull market, where the Dow Jones Industrial Average is hitting record highs, the pension plan should be 120% funded so that it can withstand another bear market.

Even at the 94% funded ratio, the unfunded pension liability for the retirement plan is pushing $1.2 billion, not exactly chump change when compared to the projected payroll of $1.4 billion for the 12,800 active cops and firefighters.

But there is more bad news that is buried in the opaque actuarial reports that, when pieced together and analyzed, reveals that the overall Fire and Police Pension Plan is over $6 billion in the red and that only 75% of its future obligations are funded.

The Fire and Police Pension Plans are also responsible for Other Post-employment Benefits (“OPEB”) which covers medical benefits for retirees. But the $3 billion of OPEB obligations are less than 50% funded, resulting in an additional $1.6 billion in unfunded liabilities.

The city is also cooking the books by “smoothing” the actual gains and losses in its investment portfolio over a seven year period. This little trick is covering up a $600 million hit to its investment portfolio.

Finally, if the newly calculated liability (that includes adjustments for OPEB and smoothing) of $3.4 billion (85% funded) is adjusted to reflect the more realistic investment rate assumption of 6.5% (as recommended by Warren Buffett), the unfunded pension liability soars to $6.25 billion and the funded ratio plummets to 75%.

When combined with the $9 billion liability of the Los Angeles Employees’ Retirement System, the city’s total unfunded pension liability exceeds $15 billion. And this liability is expected to double over the next ten years based on realistic rates of return that are in the range of 6% to 6.5%.

But what are Mayor Eric Garcetti, City Council President Herb Wesson, Budget and Finance Chair Paul Krekorian, and Personnel Chair Paul Koretz doing to address the single most important financial issue facing the city?

Nothing! Absolutely nothing other than put their heads in a potato sack and hope that a robust stock market will make the $15 billion problem go away.

They have ignored the recommendations of the LA 2020 Commission to form a Committee on Retirement Security to review and analyze the city’s two pension plans and develop proposals to “achieve equilibrium on retirement costs by 2020.”

Krekorian and Koretz made the bone headed suggestion to raise the investment rate assumption to 8% so that the city would be able to lower its annual required pension contributions to the underfunded pension plans, allowing more money for union raises.

Wesson has not even created a Council File for the pension and budget recommendations of the LA 2020 Commission.

But the real culprit is Garcetti who has refused to address the pension mess that will eventually become a crisis. He has not asked his political appointees on the two pension boards to initiate a study of the pension plans and the city’s ever increasing contributions that now devour 20% of the city’s General Fund budget.  He has refused to contest the State’s Supreme Court “California Rule” which does not allow the city to reform the pension plans by lowering future, yet to be earned benefits.

Rather than look out for the best interests of the city and all Angelenos, he continues to kiss the rings of the campaign funding union leaders who are vital to his political ambitions.

The city’s lack of openness and transparency and its unwillingness to address its ever growing, unsustainable $15 billion pension liability can only be categorized as a major league cover up that should be front and center in the upcoming March election.

Where’s Eric?

Jack Humphreville writes LA Watchdog for CityWatch. He is the President of the DWP Advocacy Committee and is the Budget and DWP representative for the Greater Wilshire Neighborhood Council.  He is a Neighborhood Council Budget Advocate.  Jack is affiliated with Recycler Classifieds — www.recycler.com.  He can be reached at:  lajack@gmail.com.

This piece was originally published by CityWatchLA

Mapping the $100,000+ CA Public Employee Pensions at CalPERS Costing Taxpayers $3.0B

Editor’s note: This piece was originally posted by Forbes.com

The California Public Employee Retirement System (CalPERS) is the USA’s largest pension fund with $301 billion in assets. It’s also a lucrative transfer mechanism helping 1,251 local governments confer ‘highly compensated’ pensions to tens of thousands of public employees. Updated numbers displayed at OpenTheBooks.com show there is a $2.8 billion annual cost to payout 21,862 six-figure public-sector retirees via CalPERS.

calpers-retirees

In California, according to data captured by OpenTheBooks.com, the Top 10 All-Time CalPERS public employee pensions start at $390,485 per year.

It’s a massive payout equivalent to the combined income tax payments of nearly 1.6 million individual California taxpayers.

So which CA governments conferred the most $100,000 plus pensions through CalPERS?

Using our interactive mapping tool, quickly review (by last employer ZIP code) the 21,862 public employee retirees at CalPERS who pulled-down a pension of $100,000 or more. Just click on a pin and use the scroll bar to review the results rendered in the chart beneath the map.

The ‘Big Dog’ units of government conferring the most $100,000 retirement pensions include the California Highway Patrol (1,066); Santa Clara County (836); City of Oakland (509); CA Forestry and Fire Protection (476); Riverside County (461); City of Long Beach (351); CA Dept. of Justice (280); CA Corrections, Paroles and Com (275); CA Corrections (268); and the City of Anaheim (253).

No one has hit the pension jackpot quite like the sworn officers of the California Highway Patrol (CHP). Of the 1,066 six-figure retirees, their average pension is $10,192 per month or $122,304 annually. On top of that, there are the 6,350 active employees at CHP averaging $115,000 in pay with taxpayers chipping in another $48,300 in pension contributions. Therefore, each officer costs $163,000 in pay and pension costs alone.

Meanwhile, Riverside County has 461 six-figure retirees and the top 12 retirements each exceed $200,000 per year. Last year, the assistant sheriff made $653,025 by cashing in banks of unused benefits, i.e. leave.

Pension envy in California is real. The hard working private sector doesn’t have benefits even remotely close to government workers.

It’s no surprise that Oakland is a sanctuary city for highly compensated public employees. It’s ranked third most in $100,000 pensions with its top 509 retirements averaging $126,000 per year. But, soon, the pension problems worsen: Oakland pays 1,251 active employees more than $100,000.

We discovered a ‘$1 Million General Manager’ position at the Los Angeles Sanitary District (LASD). In 2007, LASD General Manager James Stahl retired on a pension of $303,420. His replacement, Stephen Maguin, retired on a pension of $345,408 in 2012. Today, the new ‘General Manager’ earns a salary of $336,972. So it takes $1 million to fund a general manager position where there’s two retirees and only one is working!

In many cases the system legalized corruption. Public pensions are not only for government employees, but are also for special non-government and private associations clouted into the public pension plan at CalPERS. Incredibly, taxpayers guarantee and help fund the pensions but have no say over the salary spiking that pads lifetime pensions (i.e. huge end-of-career raises that increase lifetime pension payouts).

For example, the California School Boards Association is a self-described non-profit organization yet a private entity muscled into the public pension plan. In 2010, Executive Director Scott Plotkin was investigated and exposed for paying out a $175,000 ‘bonus’ which spiked his pay to $540,000 (2008). In an attempt to save face he retired, but now taxpayers guarantee his lifetime pension largess of $148,620.

This is the new ‘CalPERS Effect,’ in which the system itself became an outright lobbyist for higher member benefits. Now, even small towns and agencies are gaming the system for personal gain.

West Hollywood – home of the Sunset Strip – contracts its library, police, and fire protection from the county. Although it occupies less than two square miles, it still employs 69 staffers with salaries over $100,000. In 2010, the city allowed its assistant manager, Joan English, to retire on a $177,048 pension. Immediately, she was rehired on a ‘temporary’ basis in the same position.

Another example: the California Bar Association (CBA) pays six-figures to 133 currently active employees, plus there are 13 CBA retirees on $100,000 plus pensions. The top pension is Herbert Rosenthal at $181,632. Retiring in 1998, Rosenthal’s career spanned 35-years, but he’s already been retired for 18-years.

The golden state of government pension largess just might collapse under its own weight. Recently, CalPERS projected that there’s up to a one in three chance of entering a ‘crisis point’ of doomsday underfunding sometime in the next 30 years.

Still, there may some hope and relief coming soon. In August, a San Francisco based state appellate court held that reasonable benefit cuts are permissible in the pension system.

As is the case in pensions systems across the country, CalPERS shows that handing out lavish benefits to everyone – or the many – creates retirement security for no one.

Note: Recently at Forbes, we showcased the 220,000 currently active California public employees making over $100,000 and costing taxpayers $35 billion each year.

Adam Andrzejewski (say: Angie-F-Ski) is the founder and CEO of OpenTheBooks.com.

Who Funds CA’s Public Pension Systems?

As reported by the San Diego Union-Tribune:

The debate over public employee pensions often centers on funding — who’s paying the tab.

Taxpayer groups point to large public contributions to retirement funds. Public employees and pensioners point to their own contributions — and investment earnings by the pension fund itself — as significant contributors.

New data from the U.S. Census bureau sheds light on the balance among those three sources, when it comes to funding pensions.

The top contributor to state and local pensions in 2015 in California was investment earnings, at $28.2 billion or 45 percent of incoming revenue for pension systems.

Next was government contributions, generally borne by taxpayers, at $24.6 billion or 40 percent of funding. Public employee contributions totaled $9.4 billion, or 15 percent of revenue. …

Click here to read the full article