Frosting on an already-sweet pension deal – Pacific Research Institute

Frosting on an already-sweet pension deal

When people have an entitlement mentality, enough is never enough. Even though government employees enjoy absurdly generous defined-benefit pensions that often allow them to retire with 80 percent to 90 percent of their final year’s pay guaranteed forever, employees game the system by taking advantage of various pension-spiking schemes.

A San Francisco grand jury found this year that “[t]he legacy of pension spiking in police and fire departments combined with extraordinary future obligations to fund health care benefits should cause serious concerns by public officials.” The grand jury found that police officers and firefighters sometimes received more than their original retirement amount thanks to various tricks. San Francisco, while a bastion of support for liberal causes and unions, has been a bastion of fiscal responsibility with regard to pensions because of a longtime city rule requiring a public vote for pension increases. If San Francisco has problems, you know the rest of the state is in trouble.

Here are some reasons the pension system is in such a fix:

Moving on up: Because California allows government employees to lock in their permanent retirement based on their final year’s pay, many employees will go to great lengths to find the highest-possible-paying job in their final year. The Sacramento Bee told the story of Sharon McGraw, a Sacramento-area accounting manager for the state who moved from her suburban home to a tiny apartment in the San Francisco Bay Area so that she could temporarily take a high-paying job that would increase her pension benefit by $18,000 a year.

More vacation, bigger retirement: Some public employees who max out on their vacation time can receive cash in exchange for the additional hours. The extra money also is used to increase their retirement benefit.

Golden handshakes: As governments face budget crises, an increasing number of them are offering their longtime employees big payoffs to get them off the payroll. The San Leandro Times reported in May that that East Bay city offered nearly 10 percent of its workforce a package that includes an extra two years of retirement credit in exchange for leaving right away. In 1999, Yorba Linda allowed its city manager, Art Simonian, to resign and take $200,000 in severance pay and a $173,000 annual retirement after he was accused of granting himself and others unapproved bonuses.

DROP-kicking taxpayers: Many governments offer something known as DROP, which stands for Deferred Retirement Option Plans. Some critics refer to them as “sham retirements” because they allow a public employee to retire for a short time, then head back to work and collect both retirement pay and a salary. In San Diego, the Union-Tribune reports, 1,788 city employees are part of a DROP program that allows them “to collect pension payments in a special account while still employed.” The key point, made by Governing magazine’s Girard Miller, is “[t]he mere existence of a DROP plan should signal that something is wrong with the pension plan. The idea of providing incentives to seniority workers to keep them in service – because their pension plan encourages a life of leisure well before age 60 – is a signal that the pension plan benefit is simply too rich.” It also shows that these plans are designed purely for the benefit of the workers and are not designed for what’s best for the public.

Expensive presumptions: On May 8, 2009, Iowa Gov. Chet Culver sent out a news release boasting about an increase in benefits for Iowa’s police and firefighters: “Senate File 226 states that firefighters and police officers covered under the 411 Municipal Fire and Police Retirement System, who are stricken with cancer or certain infectious diseases, will now benefit from a presumption that their disease is work-related, and therefore ensure appropriate disability retirement or death benefits are provided under the 411 system.” When average citizens get common diseases such as heart attacks or cancer, they are lucky if they have health insurance to cover the medical bills. There are no special presumptions that unleash additional benefits.

Politics is profitable: Ohio lawmakers have figured out a lucrative way to snare six-figure salaries after they are done in the Statehouse by serving on commissions, where they don’t actually have to do anything, and those salaries are then used to boost their retirement pay, according to a Dayton Daily News investigation. The newspaper found 75 former lawmakers who used their political connections to secure such deals.

Airheads for “air time”: In San Diego, where a pension crisis caused tumult in the city’s government in the mid-2000s, city employees were allowed to buy something called air time. Employees would pay for additional years of work credit (up to five years). The Reason Public Policy Institute explains that such benefits are common across the United States, but that in San Diego employees were not required to pay the “full actuarial cost of the benefits.” RPPI cited the example of former Mayor Dick Murphy – dubbed one of the nation’s worst mayors by Time magazine in 2005 for his complicity in that city’s devastating pension scandal – who purchased retirement credit at a cost of $71,760 spread across five years, an annual cost of $14,352. “Assuming he finishes out his term in office, the benefit will increase his pension from $42,000 per year to $59,500 a year, a difference of $17,500 per year. Thus, his costs will be recovered in just over four years in retirement, and he will continue to reap the extra $17,500 a year for the rest of his life.”

Paying for incompetence and corruption: The Orange County Register looked at the pensions of some controversial public employees. It found that Bryan Speegle, who oversaw a county Public Works department that had descended into anarchy, per a “scathing audit,” took retirement amidst the brewing scandal and receives a pension valued at about $2.3 million. Former Sheriff Mike Carona, convicted on federal corruption charges, receives $207,979 a year in retirement benefits despite the conviction. OC’s former treasurer, Bob Citron, whose bizarre investments led in 1994 to the largest municipal bankruptcy in America, receives $92,900 a year in retirement benefits, despite his own felony conviction on financial improprieties with public funds.

Even when officials are involved in grievous wrongdoing, they continue to get their pensions. In New York, the state pays pensions to 450 corrupt officials. Some of them are in jail, but their families still enjoy the taxpayer-funded windfall. Consider that these are ill-gotten gains – in the cases of Stephen Cracappa and Louis Eppolito, they spent their police careers working for the mob, and actually carried out murders for the Mafia.

Welcome to the world of government retirements – it’s no wonder the nation is drowning in a sea of unfunded liabilities.

Steven Greenhut is director of the Pacific Research Institute’s Journalism Center in Sacramento. This column was excerpted from his new book, “Plunder! How Public Employee Unions are Raiding Treasuries, Controlling Our Lives and Bankrupting the Nation,” published by The Forum Press in Santa Ana.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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