It is surprisingly difficult to gather data on just how many public safety employees claim disability in their retirements, but this should not prevent us from estimating what the benefits bestowed on disability claimants cost taxpayers.

A common program to compensate public safety workers for job-related disabilities is to grant them a tax exemption, whereby 50% of their retirement pension is exempt from state and federal taxes. While it is virtually impossible to collect data from pension fund administrators on exactly how many retired public safety workers have retired with this benefit, a 2004 investigative report by the Sacramento Bee found that among retired members of the California Highway Patrol, 66% of the rank and file officers, and 82% of the chiefs retired with service disabilities. Similarly, a 2006 investigative report by the San Jose Mercury found that two-thirds of San Jose Firefighters retired with service disabilities. Neither of these reports remain available online, although a Google search on the term “Chief’s Disease” (a term coined by the Sacramento Bee) will find dozens of secondary references to these studies; you can start here, and here.

The point of this analysis, other than to point out the shocking lack of comprehensive data on this issue, is to perform a what-if, based on assumptions that might be reasonably extrapolated from the available data.

The first section of the table below, “Impact per Worker,” shows what a person receiving a service disability tax exemption is really making annually, based on normalizing the take-home, after-tax earnings between the case with a 50% tax exemption vs. one with no tax exemption. Column one shows an average annual pension for a recently retired California public safety employee – probably low – of $75,000 per year. It then shows what their tax burden would be based on 50% of that income being exempt from taxes – leaving a taxable income of only $37,500, which invokes far lower withholding percentages. As can be seen, someone with a gross income of $75K per year who only pays taxes on $37.5K will have an after-tax income of $67,999 per year.

Still examining the “Impact per Worker” section of the table below, column two shows that in order to collect an after tax income of $67,999 per year, if one pays taxes on 100% of their income, would require an income of $90K per year, a 20% increase in gross income. This is the true value of the service disability 50% tax exemption. As retirement incomes increase, the disparity actually widens, because the tax brackets invoke higher withholding percentages. For example, a pension income of $100K – quite common among retired public safety workers – paying income taxes on only $50K, would deliver a take-home, after-tax income of $88,858. To earn this much while paying normal taxes without special exemptions would require an annual income of $128,363, a 28% increase. The reader is invited to verify these figures by referring to 2011 Federal Income Tax Brackets, and 2011 California Income Tax Brackets.

The second half of the above table, “Impact for California Taxpayers,” attempts to quantify what the prolific granting of service disability tax exemptions to retired public safety workers costs taxpayers. Based on updated 2010 data from the U.S. Census Bureau for California State Worker Payroll and California Local Government Worker Payroll, there were 222,898 full-time police, firefighters, and correctional officers working at the state and local level in California in March 2010. This amount does not include “full-time equivalents” who brought the total up to nearly 230,000 employees. On average, these full-time public safety workers earned $84,929 per year. Among firefighters, the average was $113,057 per year. Because public safety workers have life-expectancies that – according to CalPERS own actuarial data – meet or exceed national averages, and because they are eligible for retirement at age 50 (in some cases earlier), the calculations on the above table assume we are on track to have one retired public safety worker for every active public safety worker.

As can be seen, based on these assumptions – and the pension estimate of $75K per year is almost certainly quite a bit lower than the reality, since the average mid-career earnings of public safety workers is currently $85,000 per year, and pensions are calculated on end-of-career earnings – if 50% of public safety workers retire on service disability tax exemptions, the cost to California’s taxpayers is $1.7 billion per year.

Whether or not this is an accurate estimate, and available data suggests that this estimate is, if anything, on the low side, is almost beside the point. Where is this data? Why doesn’t CalPERS, and the other pension funds managing public safety employee retirement assets, release this data?

Nobody seriously questions that public safety workers deserve to make a premium for the work they do. The level of sophistication required to work in law enforcement and fire suppression today is far greater than it was 20 or 30 years ago. The value we place on life and personal security is also greater today than ever before. There is a price for this, and it is one taxpayers should pay without resentment. The question is how much of a premium is equitable, and how much of a premium is financially sustainable. A related question is how much of this premium paid to public safety workers, to the extent it is excessive, the result of powerful government worker unions who pool taxpayer’s money to control local elections with massive campaign contributions. How much is this pay premium elevated because public safety worker unions, and their PR firms, exploited their deserved hero status in inappropriate ways to manipulate the electorate to ignore fiscal reality?

When the question turns to pensions, however, the issue of whether or not a premium is appropriate for service in public safety may not be as justifiable. If public safety workers deserve a premium, it should be paid as part of their current compensation. This way they may share, along with all public employees, the same obligations to financially prepare for their retirement that face working private sector taxpayers. As for disability pensions, it strains credulity to think that over 80% of police chiefs and fire captains, and over 60% of other public safety workers are disabled in the course of their jobs. And even if they are, these disabilities can be remedied through far less expensive private disability insurance, not through the granting of service disability tax exemptions that increase the effective gross amount of their pensions by 20-30%.

Questioning whether or not we should offer pensions in excess of $75K per year to workers who retire in their early 50s, or then offer as many as half of these retirees with service disability tax exemptions, goes beyond questions of financial sustainability. It goes beyond questioning how much of a premium they deserve for the risks they take to protect the public. A deeper question is not how much we value the lives of those who protect us, but how much we value everyone’s life. Dozens of jobs are more dangerous than those in public safety. Logging, fishing, agriculture, and mining occupations claim thousands of lives every year, and maim thousands more. Few if any of these workers retire in their early 50s with pensions of $75K or more, and none of them receive service disability tax exemptions. Do we consume the products that these workers lose their lives and endure disabling injuries to provide for us? Can we live without those products? Are their lives any less significant than the lives of others who wear badges? For that matter, are the millions who toil in factories or in front of computers any less likely to wear out and become disabled through repetitive motions and eye strain? Are their injuries less debilitating? Is their life’s work undeserving of commensurate dignity?

Ultimately, we all share the fate of our mortality, the ultimate disability. We age, we wear out, we are progressively disabled, and then we die. Nobody escapes this verdict, whether our professions are public or private, intellectual or physical, noble or profane. This common denominator – tempered by considerations of what is financially realistic – should govern our common response to the challenges of disabilities, not privilege, nor political power, nor manipulative emotional appeals.

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    4 Responses to The Impact of Tax Exempt Pensions

    1. don williams says:

      Many of these pensions are given to females who only work a few years. Often their only reason for wanting a public safety job was to go off “injured”. Many Cities find that they have a less than desirable female and want to get rid of them . They let these undesirables know that they would not oppose them if they applied for a disability pension..These Cities dont care as Calpers pays for the pension at a very small cost to the Cities..It is very difficult to fire a female cop or firefighter no matter what the reason for wanting to fire them ..Thanks DJ Wiliaqms

    2. Tom Johnson says:

      How Dare you UnionWatch for questioning your Police and firefighters. These are your heroes and middle class working families who were injured protecting you and your families. They will only live less than 5 years anyway so give them a break and what they deserve. How dare you even look at and try to destroy your disabled Firefighters and police. Go after the illegals…

      • Editor says:

        Tom – thank you for your comment. It is appropriate to question granting of tax exempt disability pensions when the only reports we can find indicate that over 50% of police and firefighters are qualifying for this very expensive benefit. Especially since, as the reports indicate, many of these claims are clearly fraudulent. It is less appropriate to question legitimate work-related disability claims, of course, but even in those cases it is appropriate to consider what level of compensation is equitable and affordable for the disability. And it is certainly appropriate to question whether or not public sector pensions in general, and public safety pensions in particular, are either equitable or affordable, since they provide benefits that are anywhere between 3x (lower pay scales, non-safety retirees), and 10x (safety retirees) what taxpayers can expect to receive from Social Security.

        As for your comment suggesting “they will only live less than 5 years anyway,” I would encourage you to check the source on that. We have obtained data from CalPERS that indicates that the average life span of a public safety retiree is exactly the same as for members of the general population. They do NOT die earlier than average.

        In this report we took pains to acknowledge the special nature of the work public safety employees do, and to acknowledge that they deserve to be paid a premium for this work. But it is none-the-less quite appropriate to question what level of premium is affordable and equitable, for everyone’s sake. As it is, the public employee pension system is financially unsustainable, and it does not appear there is sufficient oversight on the granting of service disability pensions. All of this should be examined by the public.
        - Editor

    3. RANII says:

      The ‘disability’ criteria is a farce. Almost all of these guys are regulars on the golf links. This is not the same standard applied to other injured workers. Think about these guys next time you see their ‘patriotic’ scams.

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