California public pension payouts doubled after bump in benefits

Published Monday, Sep. 09, 2013 - The Sacramento Bee

The average retirement payout for new retirees in California's biggest public pension system doubled between 1999 and 2012, according to CalPERS data, and initial monthly payments for one group nearly tripled in that period.

State and local cops and firefighters benefited the most.

In the 14 years covered by the data analyzed by The Sacramento Bee, average first-month pensions to state police and firefighters went from $1,770 to $4,978. California Highway Patrol officers' first-month retirement payments doubled from $3,633 to $7,418, and local government safety employees' pensions went from $3,296 to $6,867.

The figures from CalPERS' internal annual reports, obtained by The Bee through a Public Records Act request, show how upgraded pension formulas that became fashionable during the late 1990s and early 2000s amplified the impact of pay raises to boost retirement allowances.

The findings also illustrate the slow-motion impact of pension changes, whether enhancements approved years ago or rollbacks launched this year.

"These numbers indicate the cost of benefits given away a decade ago are finally coming home to roost," said Dan Pellissier, a pension-reform advocate who tried and failed to put a measure before voters last year to roll back pensions. "We're finally having to pay the pension piper."

Just as higher pensions established years ago are still rolling through the system, significant savings from changes that took effect this year – including caps on benefits for new hires and higher employee contributions – won't significantly stem retirement allowances and their cost to taxpayers for many years.

During recent heated debates over public pensions, unions and other defenders of the status quo have cited the average CalPERS pension payment for all retirees, now $2,629 per month, as proof that benefits were modest.

But Pellissier and others in the pension-reform camp said that figure was misleading because it included retirees who took their pensions before 1999's Senate Bill 400, which allowed employers to retroactively increase pension formulas for employees.

According to the reports obtained by The Bee, the average first-month pension allowance for all newly retired pensioners last year was $3,025, up nearly 100 percent from 1999.

CalPERS Deputy Chief Actuary David Lamoureux attributed the increase largely to higher salaries. He noted that initial payments are determined by three factors: an employee's retirement age, service time and pay. The largest group of state workers is under a "2 at 55" formula. Under that plan, for example, a person earning $5,000 per month when he or she retires at age 55 after 20 years of service receives a $2,000 monthly pension – 2 percent of salary multiplied by 20 years of service.

If the same job pays $100 more in five years to another exiting employee with the same age and years of service, the second employee's pension would be $2,040 per month.

Salary growth explains "at least 50 percent" of the increase in initial pension payments, Lamoureux said, "and maybe closer to 70 or 75 percent."

Enhanced formulas introduced in 1999 and later "could easily account for another 20 percent of the (pension) increases," Lamoureux said.

Some government retirees have gained relatively little over the years.

State miscellaneous workers, a catchall category covering such disparate employees as custodians and computer programmers, saw their initial pension allowances increase from $1,902 in 1999 to $2,884 last year. That's about $220 per month more than retirees would earn if the growth of pensions matched the effects of inflation.

Law enforcement and public-safety pensions rose more substantially, said Pepperdine University government finance expert Michael Shires.

During the dot-com boom, state and local governments had extra money, he said, "and there were aggressive, retroactive increases, especially in public safety."

CHP officers, for example, before 1999 could retire at age 50 with 2 percent of pay multiplied by up to 30 years of service time.

Then lawmakers approved a change to the formula that allowed officers to retire at 50 with 3 percent of their wages. The result wasn't that officers retired earlier – their average age of retirement, 53, didn't change significantly – but they retired with a bigger pension. The change was made retroactive.

Last year, initial average retirement payments from the CHP ran $500 per month more than those of local police and fire retirees and about 2 1/2 times those of state miscellaneous workers, the largest group in CalPERS.

Still, the pension figures for CHP and other state and local public-safety employees can be misleading, said Ron Cottingham, president of the Sacramento-based Peace Officers Research Association of California. Most government pensioners also receive Social Security benefits. Public-safety retirees, like teachers, don't.

He said the higher benefits are fair for retirees who took on dangerous work throughout their careers.

"A lot of people gripe about the compensation," Cottingham said. "Few are willing to do the job."

Jon Hamm, executive director of the CHP officers' union, said his members "have a difficult job, more than what most people realize."

But after pressing for the higher retirement formulas years ago, Hamm has said he's worried about the viability of public pensions. He supported Brown's proposal last year to roll back pension formulas for future state and local government hires and shift more of the cost to employees.

Over the last several years, he has negotiated contracts that divert some CHP officers' raises to pay more for pension and retiree health benefits.

"We're trying to be part of the solution," Hamm said.

Asked when more employees will be under the new, cheaper pension plan than the more generous benefit program, Pepperdine's Shires predicted 15 to 20 years.

"Even with the new pension formulas," Shires said, "budgets are going to be bitten by these numbers. This isn't going away soon."

Call Jon Ortiz, Bee Capitol Bureau, (916) 321-1043.