7 ms·

In California "More than 200,000 civil servants became eligible to retire at 55 — and in many cases collect more than half their highest salary for life. Califo

In California "More than 200,000 civil servants became eligible to retire at 55 — and in many cases collect more than half their highest salary for life. California Highway Patrol officers could retire at 50 and receive as much as 90% of their peak pay for as long as they lived." http://www.latimes.com/projects/la-me-pension-crisis-davis-deal/ http://www.latimes.com/projects/la-me-pension-crisis-davis-d... This seems like a pretty big budget item, especially since most CA government pension funds haven't achieved their expected 7.5% return consistently for years if not decades. Eventually the money to pay for these large pensions comes from money that would have been spent on other things.

megaman22 8y ago
The way most pensions work, you collect a percentage of your 3-5 highest salaries ever, assuming you've been there long enough. A good reason department heads in education shuffle every three years
- refurb 8y ago
  Plus those 3-5 highest years include overtime. Bust your ass with overtime for 3 years and you can reap the benefit for the rest of your life. I also recall the NYCFD had a problem with that and with people claiming disability right before retirement. The rate was something like 90%. As a result a fireman who made a base of $100K per year (just a guess), might end up with a full pension at 50 that pays him/her $150k per year until death.
  - distances 8y ago
    > As a result a fireman who made a base of $100K per year (just a guess) I know that was a guess, but sounds crazy high for a fireman. In my rather well-off Western European country a fireman makes about $45k per year before European taxes and deductions.
    - refurb 8y ago
      $50K is more typical in the US for small cities and more rural firefighters. In big cities, $100k is actually pretty typical. I found a link from 2014 suggesting you reach $100k after 5 years.[1] [1]https://www.villagevoice.com/2014/02/12/the-fdny-is-a-force-of-more-than-10000-can-you-guess-how-many-are-women/ https://www.villagevoice.com/2014/02/12/the-fdny-is-a-force-...
- Someone1234 8y ago
  > The way most pensions work Most pensions historically. People entering the job market today (or even most of the millennial generation) were never offered these final salary pensions. Instead we get defined contribution plans, 401Ks, or nothing at all. The key difference being that defined contribution plans (and 401Ks) are always only worth what was contributed (and investment performance profits). Things like your final salary, final position, or year of retirement (except for IRS rules that give significant tax advantages) don't mean very much except contributing more to these funds. It is a better system from a larger society perspective (nothing is "loaned") but may result in few actually being able to afford retirement.
  - seanp2k2 8y ago
    >It is a better system from a larger society perspective (nothing is "loaned") but may result in few actually being able to afford retirement. We'll see how this plays out with baby boomers retiring to give some indication as to what the younger generations may be up against.
    - humanrebar 8y ago
      Arguably, historical birth rates affect a larger affect on the budget than retirement account shenanigans.
bob_theslob646 8y ago
How is it possible that they can retire on 90% of their peak pay? It seems that it's based off of years of service instead of quality of service... Since the longer you work I assume the higher you get paid.
- ddjfaegjhc 8y ago
  Even worse, it includes overtime comp, so they can do a year of crazy OT, earn a lot extra that year, then retire with that year as a basis.
  - tostitos1979 8y ago
    How is this not a scam?
    - conanbatt 8y ago
      Public benefits in general are a scam. They are not funded by the workers tax, its funded by everyones taxes.
  - justaguyhere 8y ago
    Holy crap! Who thought this was a good idea? Didn't no one object or at least raise questions when this was floated? I get paid hourly, and I can't charge a single hour more than 40 a week, without having to justify it.
- dragonwriter 8y ago
  > How is it possible that they can retire on 90% of their peak pay? Because the pension formula is an age-based benefit factor times years of service; for the “2% at 55” plan, the benefit factor ranges from 1.426% at age 50 to 2% at 55 (hence the name) to 2.418% at 63+. So someone retiring at 63+ with 37¼ years of service will get just over 90%. But that's a plan that is common to run of the mill civil service. Public safety pensions tend to have higher benefit factors at the same age (but top out, in benefit factor terms, sooner), so that level can be reached earlier. > It seems that it's based off of years of service instead of quality of service... Job type will effect which plan you are in.
acdha 8y ago
> This seems like a pretty big budget item, especially since most CA government pension funds haven't achieved their expected 7.5% return consistently for years if not decades. That seems like the big story: making plans assuming such a high average is simply malpractice. There are employee behaviors worth changing (e.g. the common problem of juicing final salary using overtime) but most of the blame should go to the people who signed off on that plan.
- rayiner 8y ago
  They’re the same people. These policies were heavily lobbied for by public unions.
  - acdha 8y ago
    That leaves out the other side: who agreed to the deal and dishonestly pretended magic free money would pay for it? The unions didn’t force the state to make tax cuts below fiscally prudent levels.
    - paleotrope 8y ago
      When one party is funded by the public service unions, and they are in power, what do you think is going to happen.
      - acdha 8y ago
        > When one party is funded by the public service unions At least in the U.S. we don't have parties which are funded by unions. The unions contribute, and get out the vote, but that's rarely uniformly going to one party which gets a veto-proof majority everywhere. You see divides — e.g. the teachers unions lean Democratic but the police, firefighters, and prison guards lean Republican — and a lot of local politics showing counterexamples for any of those trends. It's also not really the point I was interested in, namely that several generations of officials choose to cook the books so they could make politically popular moves without raising taxes or even cutting them. This is not a problem specific to pensions and it's definitely not limited to a single party as e.g. three decades of Republican magical thinking about tax cuts paying for themselves should demonstrate.
ams6110 8y ago
A 7.5% return seems irrationally optimistic for something like a pension fund. Is that really what they budgeted on?
- adventured 8y ago
  You should see how they abused the dotcom bubble to push up their bogus projections: "Davis, who was elected in 1998 with more than $5 million in campaign contributions from public employee unions, says that if he had it to do over, he would not support the pension improvements." http://www.latimes.com/projects/la-me-pension-crisis-davis-deal/ http://www.latimes.com/projects/la-me-pension-crisis-davis-d... "... how in 1999 the California Public Employees’ Retirement System orchestrated the approval of a 50 percent retroactive pension increase for state employees amounts to an autopsy of a public-policy crime. It is literally incredible that CalPERS told the Legislature that such a huge gift of money would have little or no long-term cost to state taxpayers because the dot-com boom then driving the stock market sky-high would never end." http://www.sandiegouniontribune.com/opinion/sd-calpers-mendacity-never-ended-20160919-story.html http://www.sandiegouniontribune.com/opinion/sd-calpers-menda... [2009] Californians questioning why their state budget is in perpetual red ink need look no further than the California Public Employees’ Retirement System’s (CalPERS) implicit forecast in 1999 that the Dow Jones Industrial Average would reach 25,000 by 2009, 595,000 by 2049 and 28 million by 2099 and that its investment earnings would rise alongside. http://www.sandiegouniontribune.com/sdut-pensions-and-partying-its-1999-2009dec15-story.html http://www.sandiegouniontribune.com/sdut-pensions-and-partyi...
  - MaysonL 8y ago
    2018 – Dow 25,000, California budget surplus.
    - DrScump 8y ago
      What surplus?
- bartart 8y ago
  Yeah it is pretty bad. For a long time they were even projecting an 8.25% return according to the LA Times article I linked above. They used this number to justify the large benefit increases enacted when the stock market was doing well in the late 90s. They made nowhere close to that and now state and local governments in California contribute over $50bn annually to CalPERS alone.
charleslmunger 8y ago
In addition, it's not necessarily salary of the last year - it's income from the state. Which, until a few years ago, included overtime and unused sick/vacation days. The incentives were totally crazy - cities and counties paid salaries up front, but the state generally paid pensions. So it was common practice to divert all overtime to employees who were going to retire that year, to spike their income and get them a higher pension. With sick days and overtime, it was not unheard of for the calculated pension to end up paying more than the actual salary did before retirement. To add insult to injury, Senate Bill 400 under Gray Davis (who was later recalled in a special election) retroactively increased pension payments for people who had already retired and started drawing pensions. And CALPERS keeps two sets of books, dramatically overstating the actual performance of their investments. [1] It's a horrible mess - nobody wants to strip the earned retirement away from retirees, but the math just doesn't work out. When the market provides better-than-predicted returns, employee contributions are reduced and benefits are increased. When all of those extra returns are wiped out by a bubble popping, everything stays the same and the difference is made up by taxpayers. And it's incredibly attractive for politicians to buy the support of unions and their membership, when the cost won't be paid until long after they're termed out of office. [1] https://www.nytimes.com/2016/09/18/business/dealbook/a-sour-surprise-for-public-pensions-two-sets-of-books.html https://www.nytimes.com/2016/09/18/business/dealbook/a-sour-...
- ethbro 8y ago
  Public sector pensions should be run by a Federal Reserve-like "appointed but not elected" system. As you've stated, actuarial calculations + short term politics don't mix.
  - charleslmunger 8y ago
    Even then, the risk of overly rosy prediction of returns by bureaucrats is high. A defined contribution system, plus a social safety net (medicare, social security, etc) is a better system.
  - conanbatt 8y ago
    I think the economical argument that is most fundamental is that public benefits are a promise of the states future revenue. It is like a bond with no adjustment to risk. If people like public pensions let them have it, but let only people in their sector pay for it. It is absolutely immoral for someone to pay a tax to fulfill the promise of a decade old decision on someone else. Few things show how clearly people forget the State doesnt have money of its own than thinking that the state can fulfill an obligation without taking more from the innocent bystanders. Defined benefit plans should have a defined tax scope, and if they fail, they go bankrupt and thats it.
skookumchuck 8y ago
I don't get this entitlement to retire at 55 or even 50. The retirement age should be 65.
- fludlight 8y ago
  You can't do most blue collar jobs at 50, much less 65. Shoveling asphalt, laying track, climbing on top or under heavy machinery, or chasing criminals is backbreaking work. The bodies of these people are permanently worn out by the time they hit 55. Some are promoted into management, but most org charts are naturally pyramids, so there aren't enough of those jobs for everyone. So what to do with someone who is now too disabled for another blue collar job and is not a "competitive candidate" for a white collar job?
  - chvid 8y ago
    I am just a casual observer of American politics and I don’t have an opinion on it. But here in Denmark the retirement age for a police officer is 65. That these people should be particular worn out is not something that is in public discussion.
  - LoSboccacc 8y ago
    They just get thrown in the unemployed pool and their income average drops dramatically with severe ripercussion on the final pension calculations I know because in europe we have an unrealistic retirement age and my father like many other lost his job in the 2008-2012 crisis. Been unemployed ever since. What happens is that in the 50-65 braket you’re a huge liability with severe productivity drops and companies tries to fire you at the first chance they get. The european system at least has some protections against unreasonable terminations, so we aren’t fully appreciating the maddnes it would be a free job market, but company closing or figuring out how to fire the old employees in masse drops huge chunks of unemployed for life into the society. This is becoming a serious issue and it is going to peak in 20 years when all the people like me that don’t enjoy full time national contracts and their protection will get past their productivity prime.
    - 8y ago
conanbatt 8y ago
It should be plain unconstitutional to raise a tax on someone to pay a benefit to another. Whatever the court rules on the state not defaulting on its debts, pending that cost to someone that does not get, or want, the same benefit, should be equally pernicious for the law.
- FranzFerdiNaN 8y ago
  That can't work of course and will just lead to endless lawsuits that everything is a "benefit". Need more funds for education? Can't do it because you need to raise taxes on the people who aren't in middle school. Need funds for a new roads and their maintenance? Can't raise taxes because some people might never drive on that road or heck, don't even have a drivers license.
  - conanbatt 8y ago
    The impracticality of house the state mismanages its afairs should take a second seat to the fundamental rights of poeple. The people that pay a tax today to fund benefits are being robbed of money today, and of benefits in the future.

megaman22 8y ago

The way most pensions work, you collect a percentage of your 3-5 highest salaries ever, assuming you've been there long enough. A good reason department heads in education shuffle every three years

refurb 8y ago
Plus those 3-5 highest years include overtime. Bust your ass with overtime for 3 years and you can reap the benefit for the rest of your life. I also recall the NYCFD had a problem with that and with people claiming disability right before retirement. The rate was something like 90%. As a result a fireman who made a base of $100K per year (just a guess), might end up with a full pension at 50 that pays him/her $150k per year until death.
- distances 8y ago
  > As a result a fireman who made a base of $100K per year (just a guess) I know that was a guess, but sounds crazy high for a fireman. In my rather well-off Western European country a fireman makes about $45k per year before European taxes and deductions.
  - refurb 8y ago
    $50K is more typical in the US for small cities and more rural firefighters. In big cities, $100k is actually pretty typical. I found a link from 2014 suggesting you reach $100k after 5 years.[1] [1]https://www.villagevoice.com/2014/02/12/the-fdny-is-a-force-of-more-than-10000-can-you-guess-how-many-are-women/ https://www.villagevoice.com/2014/02/12/the-fdny-is-a-force-...
Someone1234 8y ago
> The way most pensions work Most pensions historically. People entering the job market today (or even most of the millennial generation) were never offered these final salary pensions. Instead we get defined contribution plans, 401Ks, or nothing at all. The key difference being that defined contribution plans (and 401Ks) are always only worth what was contributed (and investment performance profits). Things like your final salary, final position, or year of retirement (except for IRS rules that give significant tax advantages) don't mean very much except contributing more to these funds. It is a better system from a larger society perspective (nothing is "loaned") but may result in few actually being able to afford retirement.
- seanp2k2 8y ago
  >It is a better system from a larger society perspective (nothing is "loaned") but may result in few actually being able to afford retirement. We'll see how this plays out with baby boomers retiring to give some indication as to what the younger generations may be up against.
  - humanrebar 8y ago
    Arguably, historical birth rates affect a larger affect on the budget than retirement account shenanigans.

bob_theslob646 8y ago

How is it possible that they can retire on 90% of their peak pay? It seems that it's based off of years of service instead of quality of service... Since the longer you work I assume the higher you get paid.

ddjfaegjhc 8y ago
Even worse, it includes overtime comp, so they can do a year of crazy OT, earn a lot extra that year, then retire with that year as a basis.
- tostitos1979 8y ago
  How is this not a scam?
  - conanbatt 8y ago
    Public benefits in general are a scam. They are not funded by the workers tax, its funded by everyones taxes.
- justaguyhere 8y ago
  Holy crap! Who thought this was a good idea? Didn't no one object or at least raise questions when this was floated? I get paid hourly, and I can't charge a single hour more than 40 a week, without having to justify it.
dragonwriter 8y ago
> How is it possible that they can retire on 90% of their peak pay? Because the pension formula is an age-based benefit factor times years of service; for the “2% at 55” plan, the benefit factor ranges from 1.426% at age 50 to 2% at 55 (hence the name) to 2.418% at 63+. So someone retiring at 63+ with 37¼ years of service will get just over 90%. But that's a plan that is common to run of the mill civil service. Public safety pensions tend to have higher benefit factors at the same age (but top out, in benefit factor terms, sooner), so that level can be reached earlier. > It seems that it's based off of years of service instead of quality of service... Job type will effect which plan you are in.

acdha 8y ago

> This seems like a pretty big budget item, especially since most CA government pension funds haven't achieved their expected 7.5% return consistently for years if not decades. That seems like the big story: making plans assuming such a high average is simply malpractice. There are employee behaviors worth changing (e.g. the common problem of juicing final salary using overtime) but most of the blame should go to the people who signed off on that plan.

rayiner 8y ago
They’re the same people. These policies were heavily lobbied for by public unions.
- acdha 8y ago
  That leaves out the other side: who agreed to the deal and dishonestly pretended magic free money would pay for it? The unions didn’t force the state to make tax cuts below fiscally prudent levels.
  - paleotrope 8y ago
    When one party is funded by the public service unions, and they are in power, what do you think is going to happen.
    - acdha 8y ago
      > When one party is funded by the public service unions At least in the U.S. we don't have parties which are funded by unions. The unions contribute, and get out the vote, but that's rarely uniformly going to one party which gets a veto-proof majority everywhere. You see divides — e.g. the teachers unions lean Democratic but the police, firefighters, and prison guards lean Republican — and a lot of local politics showing counterexamples for any of those trends. It's also not really the point I was interested in, namely that several generations of officials choose to cook the books so they could make politically popular moves without raising taxes or even cutting them. This is not a problem specific to pensions and it's definitely not limited to a single party as e.g. three decades of Republican magical thinking about tax cuts paying for themselves should demonstrate.

ams6110 8y ago

A 7.5% return seems irrationally optimistic for something like a pension fund. Is that really what they budgeted on?

adventured 8y ago
You should see how they abused the dotcom bubble to push up their bogus projections: "Davis, who was elected in 1998 with more than $5 million in campaign contributions from public employee unions, says that if he had it to do over, he would not support the pension improvements." http://www.latimes.com/projects/la-me-pension-crisis-davis-deal/ http://www.latimes.com/projects/la-me-pension-crisis-davis-d... "... how in 1999 the California Public Employees’ Retirement System orchestrated the approval of a 50 percent retroactive pension increase for state employees amounts to an autopsy of a public-policy crime. It is literally incredible that CalPERS told the Legislature that such a huge gift of money would have little or no long-term cost to state taxpayers because the dot-com boom then driving the stock market sky-high would never end." http://www.sandiegouniontribune.com/opinion/sd-calpers-mendacity-never-ended-20160919-story.html http://www.sandiegouniontribune.com/opinion/sd-calpers-menda... [2009] Californians questioning why their state budget is in perpetual red ink need look no further than the California Public Employees’ Retirement System’s (CalPERS) implicit forecast in 1999 that the Dow Jones Industrial Average would reach 25,000 by 2009, 595,000 by 2049 and 28 million by 2099 and that its investment earnings would rise alongside. http://www.sandiegouniontribune.com/sdut-pensions-and-partying-its-1999-2009dec15-story.html http://www.sandiegouniontribune.com/sdut-pensions-and-partyi...
- MaysonL 8y ago
  2018 – Dow 25,000, California budget surplus.
  - DrScump 8y ago
    What surplus?
bartart 8y ago
Yeah it is pretty bad. For a long time they were even projecting an 8.25% return according to the LA Times article I linked above. They used this number to justify the large benefit increases enacted when the stock market was doing well in the late 90s. They made nowhere close to that and now state and local governments in California contribute over $50bn annually to CalPERS alone.

charleslmunger 8y ago

In addition, it's not necessarily salary of the last year - it's income from the state. Which, until a few years ago, included overtime and unused sick/vacation days. The incentives were totally crazy - cities and counties paid salaries up front, but the state generally paid pensions. So it was common practice to divert all overtime to employees who were going to retire that year, to spike their income and get them a higher pension. With sick days and overtime, it was not unheard of for the calculated pension to end up paying more than the actual salary did before retirement. To add insult to injury, Senate Bill 400 under Gray Davis (who was later recalled in a special election) retroactively increased pension payments for people who had already retired and started drawing pensions. And CALPERS keeps two sets of books, dramatically overstating the actual performance of their investments. [1] It's a horrible mess - nobody wants to strip the earned retirement away from retirees, but the math just doesn't work out. When the market provides better-than-predicted returns, employee contributions are reduced and benefits are increased. When all of those extra returns are wiped out by a bubble popping, everything stays the same and the difference is made up by taxpayers. And it's incredibly attractive for politicians to buy the support of unions and their membership, when the cost won't be paid until long after they're termed out of office. [1] https://www.nytimes.com/2016/09/18/business/dealbook/a-sour-surprise-for-public-pensions-two-sets-of-books.html https://www.nytimes.com/2016/09/18/business/dealbook/a-sour-...

ethbro 8y ago
Public sector pensions should be run by a Federal Reserve-like "appointed but not elected" system. As you've stated, actuarial calculations + short term politics don't mix.
- charleslmunger 8y ago
  Even then, the risk of overly rosy prediction of returns by bureaucrats is high. A defined contribution system, plus a social safety net (medicare, social security, etc) is a better system.
- conanbatt 8y ago
  I think the economical argument that is most fundamental is that public benefits are a promise of the states future revenue. It is like a bond with no adjustment to risk. If people like public pensions let them have it, but let only people in their sector pay for it. It is absolutely immoral for someone to pay a tax to fulfill the promise of a decade old decision on someone else. Few things show how clearly people forget the State doesnt have money of its own than thinking that the state can fulfill an obligation without taking more from the innocent bystanders. Defined benefit plans should have a defined tax scope, and if they fail, they go bankrupt and thats it.

skookumchuck 8y ago

I don't get this entitlement to retire at 55 or even 50. The retirement age should be 65.

fludlight 8y ago
You can't do most blue collar jobs at 50, much less 65. Shoveling asphalt, laying track, climbing on top or under heavy machinery, or chasing criminals is backbreaking work. The bodies of these people are permanently worn out by the time they hit 55. Some are promoted into management, but most org charts are naturally pyramids, so there aren't enough of those jobs for everyone. So what to do with someone who is now too disabled for another blue collar job and is not a "competitive candidate" for a white collar job?
- chvid 8y ago
  I am just a casual observer of American politics and I don’t have an opinion on it. But here in Denmark the retirement age for a police officer is 65. That these people should be particular worn out is not something that is in public discussion.
- LoSboccacc 8y ago
  They just get thrown in the unemployed pool and their income average drops dramatically with severe ripercussion on the final pension calculations I know because in europe we have an unrealistic retirement age and my father like many other lost his job in the 2008-2012 crisis. Been unemployed ever since. What happens is that in the 50-65 braket you’re a huge liability with severe productivity drops and companies tries to fire you at the first chance they get. The european system at least has some protections against unreasonable terminations, so we aren’t fully appreciating the maddnes it would be a free job market, but company closing or figuring out how to fire the old employees in masse drops huge chunks of unemployed for life into the society. This is becoming a serious issue and it is going to peak in 20 years when all the people like me that don’t enjoy full time national contracts and their protection will get past their productivity prime.
  - 8y ago

conanbatt 8y ago

It should be plain unconstitutional to raise a tax on someone to pay a benefit to another. Whatever the court rules on the state not defaulting on its debts, pending that cost to someone that does not get, or want, the same benefit, should be equally pernicious for the law.

FranzFerdiNaN 8y ago
That can't work of course and will just lead to endless lawsuits that everything is a "benefit". Need more funds for education? Can't do it because you need to raise taxes on the people who aren't in middle school. Need funds for a new roads and their maintenance? Can't raise taxes because some people might never drive on that road or heck, don't even have a drivers license.
- conanbatt 8y ago
  The impracticality of house the state mismanages its afairs should take a second seat to the fundamental rights of poeple. The people that pay a tax today to fund benefits are being robbed of money today, and of benefits in the future.