Many of the loudest calls for California public pension reform point to law enforcement retirement plans as Exhibit A in showing that the state is too generous to police officers and other public safety employees.
So it is interesting to note that the Republican gubernatorial nominee Meg Whitman has said that pensions for new public safety employees should remain essentially the same.
"New government employees, not public safety employees but new government employees beyond the public-safety realm, are going to have to come on under a different deal," Whitman said at a campaign event earlier this year, as quoted by the Los Angeles Times’ PolitiCal blog.
Whitman’s opponent, Democrat-nominee and state Attorney General Jerry Brown, argues that pension reform must apply to all California employees. Brown’s spokeswoman dubbed Whitman’s pension position "a political ploy."
The Times blog noted that Whitman has picked up a handful of law enforcement union endorsements.
The calculations underlying public pensions are hugely complex. General statements about retirement plans are often proven inaccurate by hyper-technical details. And more generous benefits provided to one job type (say, police officers) are often offset by something else (many officers don’t get Social Security).
There is no doubt, however, that promised retirement payouts [PDF] to public safety employees (police officers, firefighters, etc.) make up at least $13.7 billion of the state pension’s unfunded liability. With California Highway Patrol officers accounts included, which are short $3.3 billion, these pensions are roughly a third of the entire $48 billion shortfall, according to a report by the California Public Employees’ Retirement System.
The true amount could be ten times larger.
Earlier this year, the Stanford Institute for Economic Policy Research concluded [PDF] that CalPERS' unfunded liability was more than $500 billion [PDF].
Changing new employees’ pension plans, as both Brown and Whitman propose doing, is unlikely to deflate the existing liabilities. That said, avoiding such liabilities in the future could pose very difficult without also addressing the cost of public safety pensions.
In addition to moving back the retirement age from 55 to 65, Whitman proposes that all new state employees (excluding public safety workers) would need to pay into a 401(k)-style retirement account, called “defined contribution.” Retirees get back what they and their employers pay in during their working years (plus whatever gains are made from successful investments).
That differs from the current CalPERS plan, called “defined benefit,” which bases retirement payout on a formula including years of service and annual salary.
CalPERS certainly isn’t the only public retirement benefit in the red. In 2006 and 2007, even before the Great Recession took a huge bite out of retirement savings, the Los Angeles Fire and Police Pension System had an unfunded liability of more than $100 million.
Public safety pensions are sometimes very generous, paying out retirees well in excess of $100,000 a year.
But few police officers retire at age 50 with nearly full pay and health care. As the state pension system details in its “CalPERS Responds” website, to secure that early retirement:
Our records indicate that over the last seven years, safety workers who retired at age 50 with 30 years of service represented 1 percent of all those retired. The reason very few ever would receive this level pension is that they would have had to start working age 20 to earn 30 years. Most start their safety careers at age 27, 28, or 29.
Twelve percent of all public safety members are subject to the 3 percent at age 55 formula. They would need 37.5 years of service at age 50 to get 90 percent, and would have had to start working at age 12.5 to earn 37.5 years. And 7 percent of all public agency safety members are subject to the 2 percent at age 50 formula. They would need to have 45 years of service at age 50 to get 90 percent, and would have had to start working at age 5 to earn 45 years.
(Update: I've added more of the retirement system's statement above to provide better context.)
Firefighters and police officers sometimes face dangers far beyond what most other public employees encounter during their years of service.
However, there is another reason why [PDF] their state retirements are a little sweeter than those received by other California public workers: A significant number of California safety employees aren’t part of the federal Social Security system.
As explained by the CalPERS benefits primer:
“The remaining one-third (34.3 percent) of CalPERS members that participate in an uncoordinated plan (generally safety members) do not contribute to Social Security, and are not eligible to receive its retirement, death and disability benefits.
Therefore, these members depend entirely on their CalPERS benefits and individual savings for their retirement needs, unless they or their spouse have qualified for Social Security by working for a covered employer for the required number of quarters.