“His idea [Mayor Chuck Reed’s] of pension reform is, you sign up for one pension system, we’re going to change it now in mid career, and now you’re going to get something different.”
Lou Paulson, President, California Professional Firefighters (ref. CPF Video,  April 1, 2015)

The biggest problem with Mr. Paulson’s comment is the double standard he applies. Changing pension systems “mid-career” are just fine when they improve the benefit to Mr. Paulson’s unionized government workforce, but when it comes time to roll back these financially unsustainable changes, he cries foul.

The most obvious, indeed egregious example of a “mid-career” change to pension systems that improved pension benefits began during the internet bubble year 1999, when SB 400 was passed by the California State Legislature. SB 400 changed the pension benefit formula for California’s Highway Patrol officers from “2% at 50” to “3% at 50,” a 50% increase to their benefit. But that’s not all…

SB 400 made this increase retroactive to the date of hire for all participants. That is, if you had worked for 30 years for the California Highway Patrol and were going to retire in another year or two, instead of calculating your pension benefit based on 2% times the number of years you worked, 30 years, you would calculate your pension benefit based on 3% times the number of years you worked. Suddenly your pension benefit went from 60% of final salary to 90% of final salary – a 50% increase. Retroactively.

Mr. Paulson, does SB 400 qualify as “you sign up for one pension system, we’re going to change it now in mid career, and now you’re going to get something different?”

Once SB 400 enhanced pension benefits for California’s Highway Patrol officers along with workers in some other state agencies, laws and MOUs governing the rest of California’s state/local workforce followed suit. By 2005, most public safety employee in California were on a “3% at 50” pension. And in virtually all cases, these benefits were enhanced, by 50%, retroactively.

Last week, on April 10, the Reason Foundation hosted what has become an annual conference for citizens and policymakers involved in pension reform. As reported in the Sacramento Bee and elsewhere, the conference was disrupted by protesters, many of them off-duty firefighters, who carried signs saying things like “Reed and DeMaio Plan – Good for Wall Street, Bad for Rest of Us.”

20150414-UW_Promises

 

The problem with the notion that pension reform is “good for Wall Street,” of course, is that pension reform is bad for Wall Street. The biggest shareholders in the world are public employee pension funds. This began back in 1984, when the California state legislature placed a citizen’s initiative onto the ballot, Prop. 21, that “deleted constitutional restrictions and limitations on the purchase of corporate stock by public retirement systems.” Scarcely understood and narrowly passed, Prop. 21 turned California’s government pension funds into the biggest gamblers on Wall Street.

Before Prop. 21, just for example, pension funds might have purchased bonds to finance revenue generating projects such as dams, power stations and desalination plants, which yield decent annual returns to investors and greatly benefit ordinary Californians. Now, thanks to Prop. 21, California’s 81 independent state/local government employee pension systems, controlling over $722 billion in assets, invest 90% of it out-of-state, chasing 7.5% returns by gambling on volatile stocks, private equity funds, and even hedge funds. Private financial firms rake in billions every year in commissions and fees, while directly managing tens, if not hundreds of billions on behalf of California’s state/local government employee pension funds.

And when those investment banks and private equity firms and hedge funds make bad bets on behalf of public employee pension systems, the taxpayers bail them out.

In Sacramento Bee columnist Jon Ortiz’s report on the protest outside the April 10th pension reform conference, in what is perhaps the understatement of the century, Manhattan Institute researcher Stephen Eide said “The organizational advantages of the other side are significant.”

You can say that again, Stephen. Firefighters, along with other public employee groups, organized by unions who goad them into thinking they’re the victims of “Wall Street,” and “haters,” pack every city council meeting, every county supervisor meeting, every legislative hearing, and every event they can find where the interests of their unions may be threatened. They stare down council members, county supervisors, and legislators, making sure they know that if their interests aren’t favored, they will destroy them politically. And the taxpayers are paying for every cent of this. No businessperson even slightly dependent on an at least neutral local government is going to cross the government unions, because the government unions run the government.

Take a look at this “call to action” created by the Sacramento Area Firefighters to recruit protesters to show up on April 10th:

20150414-UW_Action

As can be seen, the firefighter union contact for this “action” is Bobby Weist, a firefighter for the City of Davis. According to Transparent California, Mr. Weiss made $162,259 last year. As for the rest of the firefighters in Davis, take a look: City of Davis Firefighter Salaries and Benefits. Of the 13 people listed (searching City of Davis employees with “Fire” in the job title), Bobby Weist was the lowest paid. Twelve other firefighters in this small department made more than him. Their salaries and benefits ranged from Weist’s $162,259 to $235,375. Six of them made over $200,000. For those readers who still think employer paid benefits don’t count as compensation, please join around 50 million other Americans and start working as an independent contractor. Every dime you save for retirement has to come out of whatever it is you get paid. Of course it counts.

A firefighter in an affluent California city like Davis works one 24 hour shift every three days. In practical terms however, taking into account paid vacation and holiday benefits, veteran firefighters actually work two 24 hour shifts every week (ref. Davis firefighter MOU), with anything beyond that paid overtime. If a veteran firefighter works 3.3 24 hour shifts per week, they double their regular pay. And the reason cities pay so much overtime? Because they can’t afford to pay the pension benefits for additional firefighters. A doctor working at Kaiser makes $251,000 per year, which is “46% above the national average.” Get that? California’s veteran firefighters, whose total compensation averages over $200,000 per year, make as much as the average medical doctor in the U.S.

Firefighter unions have managed to con many of their members into thinking that any effort to reform pension benefits is unreasonable. They are wrong. If firefighters, and by extension all public servants, really cared about the people they serve, they would (1) repeal Prop. 21, and start pouring pension assets into financing new California infrastructure projects that would benefit all Californians and still yield a solid 5% annual return, and (2) repeal SB 400 and all of its copycat measures, and accept pension benefit formulas as they were up until 1999 – still generous, but at least within the bounds of financial sustainability.

*   *   *

Ed Ring is the executive director of the California Policy Center.

14 Responses to Pension Reform is BAD for Wall Street, and GOOD for California

  1. S Moderation Douglas says:

    “SB 400 changed the pension benefit formula for California’s Highway Patrol officers from “2% at 50″ to “3% at 50,” a 50% increase to their benefit.”

    “Suddenly your pension benefit went from 60% of final salary to 90% of final salary – a 50% increase. Retroactively.”
    ………………
    “a 50% increase to their benefit.”……ONLY if the worker retires at age 50.

    And 90% of salary at age 50……ONLY if the worker started at age 20. Safety workers more typically begin their careers in the mid to late twenties.
    Just for the sake of full disclosure, if you consider two firemen who each begin their careers at age 21, and each retire at age 55, with the same final pay: If one is in the 2%@50 system, and the other in 3%@50, they will have exactly the same pension. Not a 50% increase. Not nothin. (2%@50 is a graduated formula, 3%@50 is not.)

  2. S Moderation Douglas says:

    “A doctor working at Kaiser makes $251,000 per year, which is “46% above the national average.” Get that? California’s veteran firefighters, whose total compensation averages over $200,000 per year, make as much as the average medical doctor in the U.S.”

    ” For those readers who still think employer paid benefits don’t count as compensation, ……….yadda, yadda, yadda.
    ……………….
    Why are we comparing the TOTAL compensation of a Fireman (including OT), to the base salary of a physician, who also has a DB pension (fully paid by the employer) plus retiree healthcare, plus 401 (k), plus…. who knows?

    • Ed Ring says:

      S Moderation Douglas – you’re right that total compensation should not be compared to base salary. But you are overestimating the amount of payroll overhead that applies to professionals in the private sector. The comparison begins by recognizing that the average base salary of a physician in the U.S. is [1/(1.46)] x $251.000, or $172,000. Add to that at most a 9.0% employer contribution to Social Security and Medicare, and at most a 6% employer matching contribution to a 401K plan, and you end up with an estimate of $198,000 total compensation for the average doctor in the U.S. That’s LESS than the total compensation for the average veteran firefighter working in California’s cities, especially since these pensions are underfunded and employer contributions are going up, raising their compensation even further.

      Doctors, along with other professionals in the private sector, are expected to save on their own for retirement.

      • S Moderation Douglas says:

        Oh, Ed, I’m trying to help here. It’s all about credibility. Some who regularly read this blog are probably inclined to agree with you, or even believe you are understating the public sector advantage.

        Some new readers might innocently accept your figures. A more logical (moderate) person, would likely take the Carl Sagan approach: “Extraordinary claims require extraordinary proof.”

        So, now your comparing:

        1) “a firefighter in an affluent California city” to the average doctor nationwide (as opposed to a doctor in an “affluent California city”.)?

        2) a firefighter base salary PLUS overtime (average $20K or more?) to the base salary of a physician. Physicians don’t work OT?

        3) firefighter benefits vs. “payroll overhead” that applies to professionals in the private sector. (“Doctors, along with other professionals in the private sector, are expected to save on their own for retirement.”)?

        You are the one who brought up Kaiser.

        http://physiciancareers-ncal.kaiserpermanente.org/compensation-benefits/

        1) Medical and dental for employee, spouse, children up to age 26…and for parents and parents in law. (I don’t know if or how much the insured pays. Still, group coverage = good deal)

        2) “Post Retirement Health Care, Dental, and Group Life Insurance”
        Premiums are corporate paid……at age 60 with 15 years of service….at age 65 with 10 years service.

        3) “Group Term Life and Accidental Death & Dismemberment”
        Corporate paid, $500,000 max. Also corporate paid in retirement.

        4) Defined benefit pension plan….fully corporate paid.

        5) Defined contribution plan….corporate contributions.

        6) All Senior physicians will automatically be enrolled in a long-term care insurance program. TPMG will pay the premium. 

        7) “assist new physicians with the purchase of a home in the Northern California service area.”
        “assist with moving expenses incurred during relocation.”

        8) etcetera, etcetera, etcetera.

        …………………

        Don’t get me wrong. Firefighter in Davis is a good job. Personally, I wouldn’t take it even if I were qualified, which I am not. The vast majority of Californians could not qualify. Yes, there are a lot of candidates who “could” qualify. But, “a hundred applicants for every opening” does NOT mean firefighters are overpaid, any more than one million applicants for 60,000 MacDonalds jobs means that they are overpaid.

        ……………………..
        I went through this discussion with Mr. Fellner a couple of times (although he apparently now thinks that was a waste of his time).

        You ask your firefighter his “pay” and he will tell you $74,000 a year.

        You ask a forklift driver his “pay” and he will tell you $53,000 a year. Even if he works a lot of seasonal OT, he doesn’t consider that when asked his salary. He doesn’t add in what his employer pays for SS and medicare. He doesn’t add in health insurance costs or 401(k) matching, profit sharing, or bonuses.

        If he happens to have a (fully company paid) pension, he doesn’t add the normal cost of that pension, and, if his company happened to, at one time, borrow money to fund the pension account, he for damn sure doesn’t count the interest on that loan as part of his “compensation”.

        But, if you tell that forklift driver that “Six of them made over $200,000.” I say, that is misleading. Compare the base salaries of both or compare the total compensation of both.

        Apples

        Oranges

        The grass is always greener on the other side of the fence.

        • Ed Ring says:

          S Moderation Douglas – First of all, the choice of words, “affluent,” did not affect the calculation. Veteran firefighters, averaging for ALL of California’s cities, make total compensation well over $200,000 per year. It’s not a number that is easily calculated precisely, and we can spend a lot of time arguing over whether it is $200K or $250K, but I am convinced the accurate number is somewhere in that range.

          As for the doctors, you have done some good due diligence and using Kaiser as an example would require us to consider additional benefits. Frankly in the haste of replying I neglected the obvious, which is health benefits. That probably adds a value – if you include pre-retirement funding and long-term care, of between $20K to $30K per year. The defined benefit plan would have to be analyzed, but there is no way it comes anywhere close to the cost of a 3% at 50 or 3% at 55 plan. And it at least partially replaces the 6% hypothetical 401K matching which would never be that high if there is also a DB plan. Figure 15% employer contribution for DC and DB at most, however, a 9% increase there. Long-term care insurance costs around $2,000 per year if you enroll early, ditto for life insurance.

          All in all, I think the numbers are still comparable. Remember, if Kaiser is paying 46% above the average in salary, chances are their benefits are also above the average. Imagine what it is like to be a doctor in private practice these days.

          It would be a waste of time to argue the point much further. I think the rates of pay for California’s veteran firefighters vs. doctors is comparable, and that seems excessive. These are not easy conversations to have, but in my opinion they are necessary. Rather than argue as to whether or not the average firefighter makes as much as, or only 75% as much as the average doctor, the debate should be why firefighters are making even 50% as much as doctors, on average. Doctors spend four years in medical school and then they spend four years in residency. Only the smartest and most dedicated students make it into medical school. When firefighter job openings are announced, hundreds, if not thousands of applicants line up. Why are we paying firefighters this much when the cost is breaking our civic budgets and impairing the safety of our citizens?

          • S Moderation Douglas says:

            Kaiser:

            “Your highest average compensation during the ten years prior to retirement is used to derive your highest average monthly salary. Then they take 1/2 of your highest average monthly salary and multiply this amount by 4% for each year of service. For example, a physician who has worked for CPMG for 20 years would receive 80% of 1/2 of his highest average monthly salary.”

            When you compute 90% of that fireman’s pay, that’s 90% of $74,000, not 90% of $200,000, or whatever total compensation you dreamed up. The doctor, at age 60, can get 40% of $250,000. Which would you choose?
            (Fully company paid, mind you.)

            Please don’t do any more math. Too many variables. Too much misunderstanding. A Kaiser doctor at age 60 with 30 years could easily pull in a pension over $100,000, with retiree family medical, dental, and long term care insurance. Except for the occasional spendthrift, one should expect the typical doctor would also have a respectable 401(k) as well as other investments and considerable equity in a home I could not afford to even pay property tax OR utilities on.

            This makes a really impressive headline (and it’s not the first time we’ve seen it):

            “Get that? California’s veteran firefighters, whose total compensation averages over $200,000 per year, make as much as the average medical doctor in the U.S.”

            But, it is not fact; it is what shall henceforth be known as a “Ringism”.

    • Tough Love says:

      S Moderation Douglas,

      You just made a blanket statement that the Private Sector physician has (a) a DB Pension (fully paid by the employer), (b) retiree healthcare, and a 401K Plan

      I challenge you to prove that…. even to a SMALL degree.

      Being well versed in employee benefits, while I can say that it would not be unusual for the doctor to have a 401K Plan, there is a near-ZERO probability that the doctor gets subsidized employer-sponsored retiree healthcare benefits beyond a modest $300-$500 deposited annually into a retiree HSA …. worth about 10% of the value of the retiree healthcare benefits TYPICALLY granted Public Sector workers (mostly at ZERO cost to them).

      And a Private Sector doctor (other than in a very small practice where they are fully funding it out of their own earnings) getting a traditional-style “final average salary” DB Plan (of the type almost ALL Public Sector workers get) has a near-zero probability.

      And Please …. don’t weasel your way out of your intentional mis-statements by claiming that you meant a “Cash Balance” Plan …. which is legally a DB Plan but in every other way looks like and acts like a DC Plan, and is FAR FAR less generous than the traditional-style “final average salary” DB Plans granted almost all Public Sector workers.
      ——————————-

  3. john m. moore says:

    In Monterey County, every city is imposing prop. 218 fees to pay for services(sewer,infrastructure repair and replacement) that were paid out of normal revenues before the beginning of the govt. pension bubble. Most cities have raised sales taxes for expenses that were paid out of revenues until the pension bubble. And some cities pay significant sums for pension bonds for deficits that occured prior to the 2008-9 financial crisis. Finally, all cities are building unfunded pension deficits and annual pension contibutions are about 1/2 for normal costs(the cost of this years pensions) and the other 1/2 for pension deficits and pension bonds for work provided in prior years. Services have declined significantly, but in the city of Monterey and Carmel, there are raises and benefit increases like nothing ever happened. They just raise taxes which makes the pension mess grow and grow. And surrounding city unions point to the two cities and say “me, me, me.”

  4. S Moderation Douglas says:

    A pipe burst in a doctor’s house. He called a plumber. The plumber arrived, unpacked his tools, did mysterious plumber-type things for a while, and handed the doctor a bill for $600.

    The doctor exclaimed, “This is ridiculous! I don’t even make that much as a doctor!”

    The plumber waited for him to finish and quietly said, “Neither did I when I was a doctor.”
    ……………………..
    Nyuck, nyuck, nyuck. And a firefighter makes almost as much as a plumber.

    Seriously, folks.

  5. Tough Love says:

    Wanna bet that Kaiser’s DB Plan has a value* less than 1/3 of the Rireman’s …. if retiring at the SAME age, with the SAME pay, and the SAME years of service.

    * considering ALL aspects … e.g. the richness of the formula AND the Plan “provisions”.
    ———————————–

    The extraordinary (and hence COSTLY) generosity of Safety workers pensions is obvious to anyone with a modicum of financial literacy.

  6. S Moderation Douglas says:

    And a reminder, once again; pension “reform” is a euphemism for pension reduction.

  7. wesmouch says:

    Comrade
    physicians do work overtime. It is called call for whi h there is no extra pat. Anyway sixfigure compensation for firemen is ridiculous. This is a job that requires a GED and is less dangerous than a truck driver. Paycuts in the order. Of 50 percent are needed to cut these parasites down to size

  8. wesmouch says:

    Lets hope so. What a bunch of blood suckers they are

  9. wesmouch says:

    For an MD 12 plus years of training and six figure education bill. For fireman A GED AND SIX FIGURE SALARY. SOUNDS FAIR THE UNION PARASITES WANT YOUR KIDNEY ALSO

Leave a Reply

Your email address will not be published. Required fields are marked *

Time limit is exhausted. Please reload the CAPTCHA.

Set your Twitter account name in your settings to use the TwitterBar Section.
UNIONWATCH WEEKLY NEWSLETTER
Yes! Please send me your weekly email with more articles like these.
NEVER DISPLAY THIS AGAIN.