The public has little understanding of the complex CalPERS retirement system, yet it is one of local government’s largest expenses with annual estimated costs of more than $10 million a year, 30 percent of payroll, for Hollister and San Benito County combined. Some of the highest costs are side deals where public agencies pay all or a portion of the employees’ premiums. This problem belongs to local politicians who know it does not show up in the salary tables and therefore avoids public scrutiny. The upshot is that many members contribute little or nothing to their CalPERS retirement. CalPERS is really two systems, one for most “Miscellaneous Employees” and one for “Public Safety Employees.” Both offer a “full retirement” at a young average age, but at extremely different levels.
Miscellaneous Employee plans are typically 2.0 percent times years of service at age 55 and often include Social Security as a coordinated component. The Social Security portion does not kick in until the employee reaches Social Security retirement age. Miscellaneous Employee jobs tend to be less government-centric; those employees may work for the government, then in the private sector, and then come back to government.
The cost to the Miscellaneous Employees would total 13.2 percent under current rates: 7.0 percent for CalPERS and 6.2 percent for Social Security with full contributions if they paid their share. The public would also pay about 20.0 percent: 13.8 percent for CalPERS and 6.2 percent for Social Security. That is about the same as Social Security a plus a two-for-one match on a 7.0 percent 401(k) and certainly is as good as most private plans. I believe it is about right.
The second CalPERS retirement system pays Public Safety Employees in their early fifties an average 78 percent of their wages for life and costs the taxpayers an added 40 percent to 50 percent including agencies typically picking up 9.0 percent of the employees’ contributions and there is no participation in Social Security. Together state highway patrol and public agency police and firefighters account for more than two-thirds of the 9,100 CalPERS retirees who receive pensions over $100,000; they added 1,533 to that group in FY 2009-10. The complications are that public safety jobs are government-centric and they are held by the groups with the biggest political influence.
The maximum retirement for public safety employees, 90 percent of their final compensation, is often super- inflated by use of the one-year, rather than 36-month, average and, occasionally, includes employer payments on behalf of the employee as if they were wages.
Everyone appreciates public safety employees and they face special problems on the job; however, statistics show that they do not die young as often claimed. We need a system something like combat pay or flight pay – you get more money when you are in harm’s way – but it does not count toward retirement. I believe that all public plans should work with Social Security; they should have both a defined benefit and variable component; the employees must take some of the investment risk until they reach a realistic full retirement age. I also believe that public employees should pay the whole employee share.
We could not have a society without public employees, but the unit retirement costs for Public Safety are simply far too rich compared to the system’s “owners” – the average taxpayer – especially with their longevity approaching age 83. Any way you do it, the cost of top-level retirement for life as early as 50 years of age has to come down if government is to be of service to the public.
Marty Richman is a Hollister resident. His column runs Tuesdays.
