Last week I discussed the size of CalPERS retirement pensions. The key point was that the there are large variations between employee groups. The bottom three groups retiring in FY 2010-11 – all miscellaneous employees – averaged $21,000 to $38,000 at 21 years service and age 61. The top two groups – local police/firefighters and the state Highway Patrol – averaged $84,000 to $92,000 a year at 28 years service and age 54. Between those extremes were other local agency and state public employees. Errata: The chart last week should have read “E-7 Sgt. First Class” – not “E-7 First Sergeant.”
About 64 percent of active CalPERS members, mostly non-public safety, also participate in Social Security. Both the employer and employee pay 6.2 percent of wages as Social Security tax, omitting Medicare. There is a temporary 2 percent tax holiday for the employees who are paying 4.2 percent. Almost all employers and employees pay their own share of those taxes – that is not the case for CalPERS.
CalPERS breaks premiums into two parts like Social Security, but they are not equal and, most important of all, employers often pay all or part of the “employee’s share” as well as their own share in expensive side deals. Both San Benito County and the City of Hollister employees have these deals.
Technically, these side deals have nothing to do with CalPERS; they are made directly between employers and employees. They save employees the both the cost of premiums and immediate income taxes because they do not count as current income. In a strange twist, these payments sometimes count as additional Final Compensation increasing the employee’s retirement benefits. Optional retirement benefits also increase employer rates.
The current local rate components and final rates are detailed in the tables provided; Table I – San Benito County Current Payment Rates and Table II – City of Hollister Current Payment Rates.
Some problems are that the employer costs float and the employees do not share in any market risk. Another is that increases tend to be permanent and decreases temporary; this allows employers to push underfunded costs into the future where they are out of public view. Finally, expensive side deals are little understood by the public and easily manipulated politically.
For example, in mid-2010, Hollister quietly instituted the city-paid One-year Final Compensation benefit for all groups except firefighters adding cost to the total employer contribution rate – and nothing is free. The city, which has been in financial difficulty for several years, continued to pay the employee’s full shares, 7 percent or 9 percent, until November 2011. They then negotiated some shift-backs but left the new benefit offset part of the savings. As of November 2011, the police union agreed to pick up 3.7 percent and the Firefighters union agreed to pick up 6.0 percent of their respective 9.0 percent employee’s shares. If the taxpayers are paying for it, is it really the employee’s share?
Additional shift backs for fire and for other groups are scheduled for later this year and in 2013. However, there is no assurance that these changes will not be bargained away by again shifting employee costs back to the employer as soon as funds are available; that is the history of the system both locally and statewide.
Note: There is another side deal to allow city miscellaneous employees to pay for and receive a retirement boost to 2.5 percent at age 55 and an agreement to start some two-tier retirement systems, but substantial savings from the two-tier systems are unlikely to be realized for many years. For background notes on some of the data see more online at http://www.sanbenitocountytoday.com/
Next week – Summing up CalPERS retirements.
Marty Richman is a Hollister resident. His column appears Tuesdays.
Here are some additional notes about data contained in the articles about the CalPERS and Social Security retirement systems:
The basic data for CalPERS and CalSTRS came from each agency’s published agency ‘Fact Sheets.’
The average value of recent Social Security old age pensions came from the Social Security Administration. A minimum of 40 qualifying quarters, 10 years of work, is required for a standard old age pension. If you were born in 1960 or later, early retirement for Social Security is age 62 and full retirement is age 67. The BLS has not produced worklife estimates since February 1986, at that time the estimated worklife for non-disabled persons age 20 exceeded 30 years. The average number of work years for an old age retiree was not stated, but it’s likely to be between 30 to 40 years.
I selected 65.3 years as the average age for Social Security retirement because the vast majority of people currently do not want to retire until they are qualified for Medicare at 65 and the old data, average age for men and women retiring on Social Security in 1998, was 64. At that time, the full retirement age was 65 years and 2 months. It has increased to 66 for those born from 1943 – 1954, so I adjusted the estimated average age up to 65 years, 4 months to accommodate the increase in full retirement age.
CalPERS retirement is capped at 90 percent of Final Compensation. Social Security also has a maximum benefit based on retirement age. According to the SSA, “The maximum benefit depends on the age a worker chooses to retire. For example, for a worker retiring at age 66 in 2011, the amount is $2,366 [$28,392 annually]. This figure is based on earnings at the maximum taxable amount for every year after age 21.” However, if you continue to work and defer taking Social Security retirement past your full retirement age, your benefits will increase. But this is not a realistic option for most retirees – it is reported that 72 percent of current recipients receive reduced benefits because they started their benefits prior to their Full Retirement Age. A non-working spouse can also qualify for partial old age retirement benefits based on the record of the working spouse.
The military retirement comparison entries are the actual pensions for service members in the grades and with the time of service indicated. They are a percent of base pay; special pay and allowances are not part of the military retirement calculations under current law. DoD provides an online calculator for military retirement; I selected typical grades and service time by examining the active duty force and pay scales.
The longevity pay for Sergeants First Class, E-7, topped out at ‘over 26 years of service’ in 2010. They represented 8.2 percent of the enlisted active duty force; MSG/1SG, E-8 made up only 2.3 percent; therefore, I selected SFC and 30 years as a typical full career. The longevity pay for Lieutenant Colonels, O-5, topped out at ‘over 22 years.’ They represent 12.3 percent of the active duty officers while COL, O-6, were 5.2 percent and all the General Officers combined are 0.4 percent; hence that is the natural career break. I also adjusted the ages/service level to account for the 4 years of college most commissioned officers have prior to entering the service.
