California Firefighter Compensation
On August 4th an interesting analysis of public sector compensation was posted on the blog Inflection Point Diary entitled “How to Figure Out How Much Money a Local Government Manager Makes.” In this decidedly conservative analysis, the conclusion was that “real annual compensation [is] at least 33 percent higher than the ‘salary’ the city would have told you about if you called to ask this question.”
This 33% is typically called salary overhead, and must include the current year funding required for everything not included in straight salary – such as the value of all current employee benefits, as well as the current year funding requirements for all future retirement benefits for the employee. In the private sector, a generous overhead percentage would be about 25% – about 9% for the employer’s contribution to social security and medicare, a 6% employer contribution to the employee’s retirement savings account, and roughly another 10% for the employer’s contribution towards the employee’s current health benefits.
If only the difference between private sector employee overhead were only 33% vs. 25%, however. In reality, because public sector employees receive defined retirement benefits that are anywhere between 3x and 10x (that’s right 10x, ref. Social Security Benefits vs. Public Sector Pensions) better than someone with a similar salary history can expect from social security, and because these future benefits must be funded as part of a public employee’s total compensation each year, public sector salary overhead can often reach 100%. This is particularly true for public employees who work in safety-related occupations, such as police officers and firefighters (ref. The Price of Public Safety). With all this in mind, how much do firefighters really make?
To perform this analysis I obtained payroll data for the firefighters employed by the City of Sacramento. The data is for the most recent 12 months, and does not include the top management of the fire department. It does include data for 543 individuals. The numbers are probably a bit low, on average, because there are undoubtedly people on this list who didn’t complete a full year of work, but the calculations to follow will assume all of the payroll data represents 12 months of full-time work.
In terms of basic pay, the “base hourly earnings” of Sacramento’s firefighters was $74,000 per year. Overtime, on average only added $10K to that total, which suggests that – at least in Sacramento’s case – overtime is not creating a crippling additional burden to the department expenses. But when you add “incentive earnings,” “holiday payoff,” “other earnings,” “sick payoff,” “other payoffs,” and “vacation payoff” to the total, the average firefighter in Sacramento makes $101K per year. This does not include health and retirement benefits, however.
To get to the true number, I then reviewed the current Labor Agreement in force between the Sacramento Firefighters Union Local 522, and the City of Sacramento. I then verified with a senior attorney with the City of Sacramento that certain of my assumptions were correct. In particular, the City pays 100% of firefighters current and retirement health insurance benefits, and the City pays 100% of firefighters retirement pension contributions. So what is all of this worth?
Calculating the value of current benefits is relatively easy, particularly if you simply want to pick a conservative number. In the firefighters labor contract, health insurance benefits are covered up to a maximum of $1,200 per month, and after 20 years of service, the City pays 100% of this coverage for life. The City also pays a uniform reimbursement of $871 per year, tuition reimbursement of up to $1,500 per year, along with life insurance, and subsidized parking or subsidized mass transit benefits. There are certainly other benefits not identified in a relatively cursory review of the 81 page labor agreement Sacramento’s firefighters are under, but it is fair to assume the value of current benefits averages about $12,000 per year, raising the total compensation for the average Sacramento firefighter to $113K per year. But we haven’t yet accounted for the current year funding requirements for future benefits, such as retirement health and pension payments.
If you refer to Sacramento’s reported payroll data, the average pension fund contribution per firefighter per year is $31K, which means – since the City pays 100% of this contribution and the firefighters contribute zero in the form of payroll withholding – the average compensation for the average Sacramento firefighter is actually $144K per year. But it doesn’t end here, because these pension fund contributions are based on CalPERS official return on investment projection for their fund, which is 4.75% per year, after adjusting downwards for inflation. I would argue that the chances that CalPERS is actually going to earn this sort of real, inflation-adjusted return is zero. For much more on why it is absurd to expect a 4.75% year-over-year return on hundred billion dollar funds in this era, read The Razor’s Edge – Inflation vs. Deflation, Pension Funding & Rates of Return, and Sustainable Pension Fund Returns.
For these reasons, a truly conservative fiscal strategy for pensions would be a pay-as-you-go model, where pension fund allocations aren’t even invested because the present value of the money is not discounted. Using such assumptions would go a long way towards guaranteeing solvency to pension funding, and would dismantle the pernicious alliance of public sector pension funds and Wall Street brokers and speculators (ref. The Axis of Wall Street & Unions). And why should public sector employees collectively invest taxpayer’s money into public equities and other private sector investments where they (1) exercise influence over the management of these companies as shareholders, (2) reap the sole benefit of windfall returns from these investments when they occur, and (3) compel taxpayers to make up the shortfall whenever these investments do not perform adequately? But just in the interests of presenting a realistic calculation of what firefighters in Sacramento are really making each year in total compensation, let’s use a rate of return that might actually be achievable, one-half the rate CalPERS clings to, a return of 2.375%. What happens?
As explored in the posts Maintaining Pension Solvency, and Real Rates of Return, where charts are depicted showing the entire logic of this calculation, if you assume 30 years working, 30 years retired, a pay history wherein annual salary doubles in real dollars over the employee’s career, and a retirement pension based on 90% of the employee’s final year of pay, at a fund return of 4.75%, to maintain a solvent pension fund you would have to set aside 30% of the employee’s salary each year. This 30% calculation is a bit lower than the percentage actually being set aside by the City of Sacramento for their firefighters. The 34.9% of salary that Sacramento contributes into CalPERS for each firefighter probably reflects the fact that CalPERS is currently underfunded, plus other more conservative assumptions than are made in this simplistic example. The point is this: If you make these assumptions and use a projected rate of return of half what CalPERS still claims they can earn, you will get a result that is, if anything, too low. And based on a rate of return of 2.375%, it is necessary to contribute 60% of salary into CalPERS each year to keep each firefighter’s pension solvent.
Total compensation has to include current year funding requirements for future benefits. Using a realistic rate of return of 2.375% (after adjusting downward for inflation), pension funding requirements double, which means the average firefighter in Sacramento – if these pension commitments are honored – is really making $174K per year. And while the City of Sacramento doesn’t accrue for, much less fund, their future obligation to provide retirement healthcare benefits to their firefighters, it is still a liability, and it is still necessary to apply the present value of these future costs to the years these employees are actually working. This fact will easily put the annual total compensation for the average Sacramento firefighter at $180K per year.
So how much do firefighters in Sacramento work, in order to earn $180K per year on average? Returning to the labor agreement, firefighters working the “suppression” shifts, i.e., most of them, the guys who staff the firehouses and are on call 24 hours per day, typically work two 24 hour shifts every six days. That is they work a 24 hour shift one in every three days. During these 24 hour shifts, most of the time, they have time to eat and sleep, in addition to performing their duties. But if you review the agreement, you will see that by the midpoint in their careers, after 15 years, firefighters will earn the following quantity of 24 hour shifts off with pay – 6.53 for holidays, 9.33 for vacation, and 2.0 for personal time. This means, not including sick leave, the average firefighter works 2 shifts of 24 hours every 7 days. Two days per week. This estimate is not significantly skewed by overtime pay, since on average, Sacramento firefighters are only logging about 8% overtime hours.
One can make as much or as little as one wishes with these numbers. There is nothing here suggesting firefighters are overpaid or underpaid. Because before having a discussion regarding whether or not firefighters are overpaid or underpaid, it is important to simply present the facts – here is how much firefighters are paid. It is left to each reader, voter, financial analyst, policymaker, and firefighter to ask themselves: Should firefighters make $180K per year, on average, to work two 24 hour shifts per week, and can we afford this? And should the premium, in terms of salary overhead, for public safety personnel be nearly 100%, if not more?
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Edward Ring is a contributing editor and senior fellow with the California Policy Center, which he co-founded in 2013 and served as its first president. He is also a senior fellow with the Center for American Greatness, and a regular contributor to the California Globe. His work has appeared in the Los Angeles Times, the Wall Street Journal, the Economist, Forbes, and other media outlets.
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Ed-
Thanks for using a real city and naming it this time.
As far as your “premium on public safety” issue goes…
Are you aware that currently the average US military servicemember receives pay and benefits that average right at 100K?
http://www.goarmy.com/benefits/total-compensation.html
The physical standards and criminal background checks are similar. The average US service person is not required to live in a high cost area like Sacramento either and does not have the same educational requirements, age requirements, or driving record requirements as a Sacramento public safety worker either.
While you do not specifically say that there should not be so much premium paid for public safety workers this time, the tone of your article leads us to think that a “100% premium” must be excessive.
Consider this– Studies now show that 75% of today’s youth are unfit for military service because of physical, educational, or criminal reasons.
http://www.foxnews.com/politics/2009/11/05/new-report-says-percent-young-americans-unfit-military-service/
Public safety recruitment essentially competes for the same caliber of people. Perhaps since there is only a small minority of people eligible to do these jobs, maybe a 100% premium is a bargain compared to what it could be– 200%, 300% or more.
Oz – thank you for your thoughtful comments. You bring up a lot of points for consideration, so here are a few responses:
The fact that, according to the Fox report you reference, 75% of America’s youth would not qualify for service in public safety or the military, invites many observations. Reforming our public schools by (1) being able to fire incompetent teachers and (2) bringing back mandatory physical education, probably could get that percentage back up again.
If the total benefits package in the military averages $100K, assuming that is calculated to take into account current year funding for future benefits, that is still far below the costs in California for public safety personnel. In the two cities I’ve personally researched – Costa Mesa was the other city – the range of total compensation is between $180K and $200K per year. And as the Fox article noted in the case of the military today, there is no shortage of qualified applicants for positions in public safety in California. Even before the economy slowed down, there have always been ample qualified applicants for jobs in firefighting.
Should the average firefighter in California make $180K per year? And if not, in what area could cuts to firefighter compensation be made? I will confess I think $180K average is pretty high, even though I firmly believe there should be a premium over the market rate in recognition of the risks firefighters take to protect the rest of us. But even if $180K per year is not too much to pay firefighters, it is not something we can afford in this economy. That is one of the biggest challenges facing California’s state and local governments (and elsewhere in the U.S.), these pay scales were possibly justifiable during the economic boom, but are completely unaffordable today. A lot of people in public service seem to think it is relatively easy to find better paying jobs in the private sector. You may wish to review studies on pay scales in the private sector. Making $180K per year is a very, very unusual, very elite private sector job. Hardly anyone makes that much. So for reasons of pay equity and taxpayer affordability, I think it is appropriate to wonder if we should reduce pay and benefits for public sector employees, including those in public safety.
Ed-
Thanks for your response. A few more comments.
1) No disagreement at all with your comments about physical education.
2) I know nothing at all about real estate in Sacramento and it’s hard to get good data, but assuming Sacramento is an average city in CA in terms of housing prices, cost of living, etc. and the average home in CA costs double the average in the US…
http://www.zillow.com/local-info/
If more than 1 million service members all over the US and the world are averaging 100K it seems close to reasonable for public safety folks in Sacramento to be getting 180K. It may or may not be affordable, but can you see why talking about 500 firefighters in Sacramento is a moot point when you have millions of servicepeople driving the market compensation?
3) You are correct about the perceived demand for firefighting jobs, but I think if you talk to a recruiter for military, police, or fire, you’ll see that continually weeding out and maintaining a list of interested and qualified applicants can be quite challenging. You’ll further see that retaining such employees sans a good pension is even more challenging.
I know I keep harping on the link with military compensation, but I think the only solution might be to reinstate mandatory service with plenty of noncombatant options also.
In addition to bringing down labor costs, it would get more people to pay into SS, get people started with healthcare, job training, etc. and challenge the youth of today (back to Physical education comments…)
What do you think?
Oz: A reinstatement of mandatory national service would be a hard sell, but probably not any harder than some of the other things we face. Personally I think it probably is something worth discussing, but I don’t think it would solve the issue of costs for military pensions or compensation for career service personnel, which is what brings up the averages. And the difference between total average compensation of $100K and $180K is HUGE. Minor reforms to military benefits, such as restoring the pension cap of 75% of final salary, would go a long way towards keeping military compensation schemes within sustainable bounds. Similarly, minor reforms to social security, such as a slightly higher cap on withholding, a slightly higher withholding percentage, and a slightly higher age at which benefits are granted, would keep social security financially solvent. These are fairly easy issues to fix. But the issue of public sector employee compensation and benefits is a far more difficult issue to fix, because in states like California, the compensation packages aren’t slightly over-market, they are way, way over-market. We can’t afford them, and minor tweaks aren’t going to fix the problem.
If you suggest that $180K is an appropriate rate of compensation for a firefighter in California, because the cost of living is twice as high in California, you may wish to consider the following: (1) California housing is probably heading for further correction, so the 2x rule of thumb may not apply that much longer, (2) the reason housing, and the cost of living in general, is so expensive in California is because of the government. Living in California is more expensive than in the rest of the U.S. because we have higher taxes to pay over-market wages to public employees, combined with an artificial scarcity of land due to ridiculous restrictions on land development caused by radical environmentalists and compliant politicians. And why shouldn’t politicians create artificial scarcity to artificially drive up property values? That increases property tax revenues. But the whole thing is a house of cards, and the first step towards genuine recovery is to enact reforms so our state and local governments cost less and create less burdens on businesses and consumers. Government employees in California could afford to make less, if they made less and regulated us less.
Wow. What a bunch of trash. You’re just another blogger willing to make assumptions fit a story. The internet has spawned quite a few of you. I glad the public ignores most. Those who can do, everyone else blogs. I can’t find enough trained people to hire because everyone wants to sit at a computer screen all day. A guy like you never has the right to be critical of those who really work and take risk.
Chris: You are mistaking my concern over the fact that we are paying our firefighters $180K per year to work two 24 hours shifts per week with being “critical of those who really work and take risk.” Nothing could be further from the truth. I have nothing but respect for people who do real work, and everyone who has ever worked with me or met me knows this with no doubt.
You’ve referred to my calculations as “trash,” but I invite you to explain which of them are trash, and why. As Jeff Adachi has said, this is a “math problem.” The liability facing public sector pensions, in sum, is bigger than the liability facing social security, despite the fact it is for one fifth as many people. That is not equitable, but more significantly, it is going to drive this nation over the cliff financially. Is that what you want? Social security, a modest defined benefit that helps with retirement but also challenges responsible citizens to save up additional assets to supplement social security, is an appropriate level of retirement security for taxpayers to collectively fund for each other. While it faces financial challenges, solving them is easy compared to what it’s going to take to fix public sector pensions. Nobody ever intended to pay public employees nearly as much, if not more, when they are retired than what they earned when they were at the peak of their careers.
If finding trained people is truly a problem for whatever agency you are recruiting for, then get rid of the pensions completely, go back onto social security which costs about 1/5th (or even less than that) as much to sustainably fund, and increase the actual salaries for current work even more. Young men and women entering their careers are not thinking about their pension benefits 30+ years from now, they are thinking about how much they’re going to get for their next take-home paycheck. And if they are responsible, they will save some of it for retirement.
Ed-please also tell Oz that a cop and FF job is a semi skilled, manual labor job that only requires a GED with no prior work experience.
And then tell him if they do not think they make enough, even at HALF that $200K per year, to feel free to go out into the real world and make more. A GED with no job skills pays minimum wage with no benefits in the real world.
These jobs have never had a problem getting qualified applicants, ever. FF generally has 1,000 applicants for every one opening, cop is at least 500. Most do not get past a highly subjective “oral interview” unless you’re one of the connected few groups who get in:
1 – Family (Hi LAPD Chief Charlie Beck and 5 family members!! Hello El Cajon Police Chief Pat Sprecco and son Nick Sprecco!!! Hello Alex Fagan junior at SFPD!!!! Hello Robert W. Nicheliniand son @ Vallejo PD!!!),
2- Friends,
3- Civil rights lawsuit consent decree hires for engaging in 1 & 2 above. (Hi LASD, and your female hiring requirement under the Bouman v. Baca Consent Decree!!!),
4- Military workfare hires- who are hired in extraordinary (and out of proportion) numbers.
These jobs, if contracted out allowing for supply and demand, would drop comp down by at least 50%, but probably much more. They are semi skilled manual labor jobs, not MD’s.
The answer to your question ……(Should firefighters make $180K per year, on average, to work two 24 hour shifts per week, and can we afford this? And should the premium, in terms of salary overhead, for public safety personnel be nearly 100%, if not more?) ….. has been obvious to those well versed in pension/benefit funding for at least a decade. Due to the souring economy, the masses are finally getting clued-in.
Further growth of these pensions (for CURRENT, not just new employees) MUST end pronto, or we’ll be bankrupt for sure.
Since the Politicians/legislators CAN’T/WON’T make these changes, the answer is to OUTSOURCE the entire Fire Department, QUICKLY followed by Corrections … and with consideration or how this can be done for Police as well.
Ed, You’re doing a great service by putting this out there for everyone to digest and analyze. And don’t be discouraged by the like of Chris & his ilk, certainly Civil Servants riding this gravy train and do not want it derailed,
And for those who would like to see a bit of the “math” that you and Jeff refer to, read the following Public Vs Private sector pension comparison I prepared a while back … sorry, it’s a bit long …..
” If you “do the math” ….
The total “value” of benefits at retirement is the present value of all future payments, be they pensions benefits, healthcare premium subsidies, or anything else. Some of these future cash flows are definitively known at the time of retirement (e.g., fixed monthly pensions), and others need to be estimated (e.g., healthcare premiums, the incremental value of future COLA pension increases, etc.). However, all of these future payments can be reasonably estimated (sometimes with several options such as the low, medium, and high liability estimates routinely provided by the Social Security Administration). Once all known and estimated future payments have been determined, they can be discounted to the point of retirement at an assumed interest rate and an assumed mortality rate (for those payments that cease upon death). The interest rate used in this calculation is very important, but actuaries routinely do calculations of this sort and the range of reasonable interest assumptions for this purpose is fairly narrow.
The present value of all retirement pension and benefit payments can be looked at as the answer to the question ….. How much would an insurance company charge in a single payment at the time of retirement to take on the guaranteed responsibility to make all future payments in lieu of the former employer.
If we examine two 30-year service, age 55 workers (one Private Sector & one a Policeman or Fireman) making $100,000 in base pay + $20,000 in overtime at retirement, what would these present values be?
Being somewhat versed in the subject of employee benefits I’ll describe the “likely” pensions & retirement benefits afforded each and then estimate their present values.
Let’s assume the Private Sector worker is one of the few lucky enough to still have the older traditional-style defined benefit pension plan, and does NOT contribute towards its cost (common practice in Private Sector plans). With 30 years of service and with a typical formula that takes into account wages above and below Social Security “covered compensation”, this worker would likely receive about 40% of final 3-year average pay at normal retirement age, and overtime would NOT be included in benefits-bearing compensation.
Here’s how the Present value would be calculated …
Assume $95,000 is the AVERAGE of the last 3 year’s base salary, so 40% x 95,000 = $38,000. But this would be payable only if the employee waited until his plan’s “normal retirement age”. Let’s assume that his plan’s normal retirement age is 60. Since he will start collecting his pension 5 years early, there would be an “actuarial reduction” of 4 to 6% per year (just like Social Security applies when someone starts collecting early at age 62). Let’s assume the yearly reduction is 5%. So … we now have an annual pension of $38,000 x .75 = 28,500.
Now, to convert this to a “present value” we need to apply a life annuity factor (which incorporates the interest and mortality discounts discussed earlier). For someone retiring at age 55 this “factor” would be a multiplier of about 15. So … the present value of this worker’s pension is $28,500 x 15 = $427,500.
We will also assume there are no post-retirement healthcare benefits, as such benefits are VERY rare in the Private Sector.
Now let’s calculate the present value of the Policeman’s pension & benefits.
The pension formula for the policeman is often 3% of the last year’s salary (including overtime) per year of service and with no “actuarial reduction” for collecting benefits at age 55 (unlike for the private Sector worker). So … we have ($100,000+$20,000)x.03×30 =$108,000. But, we’re not done …
The policeman’s pension includes a provision for post-retirement COLA increases (while essentially NO Private Sector plans do so). Although this may surprise the reader, the “value” of this added benefit is VERY significant. Even with a modest long-term inflation assumption of 3%/yr, the addition of a COLA benefit for life increases the value of the pension by at least 50%. Hence, the levelized annual pension (with the COLA) is now $108,000×1.5=$162,000.
Using the same annuity factor of 15 (as used in the Private Sector workup above), we have a present value of 15x$162,000=$2,430,000.
But wait, we’re still not done (2 more items to adjust for) …
First, in fairness, the policeman contributes a percentage of his pay toward his pension (unlike the Private Sector worker), and the accumulated value (at interest) of these payments at retirement should be subtracted from the above $2,430,000 for a fair comparison. For this policeman whose final total pay was $120,000, I have calculated the accumulated value at retirement date of his contributions to be roughly $400,000. Hence the present value of this officer’s pension (offset by the accumulated vale of his contributions) is $2,430,000-$400,000=$2,030,000
Second, this officer gets free or heavily subsidized retiree healthcare for himself AND his family. Since he is not eligible for Medicare until age 65, his healthcare premiums are very expensive and are expected to increase annually at 8-12%, triple the rate of regular (non-medical care) inflation. The present value of this benefit and the post Medicare age healthcare subsidy is roughly $500,000.
Hence, the present value of this officer’s pension AND retiree healthcare benefit is $2,030,000+$500,000=$2,530,000.
Now, let compare the present value for these 2 workers making the SAME pay, working for the SAME number of years, and retiring at the SAME age.
The Private Sector worker’s EMPLOYER-PROVIDED retirement benefits are worth (as a present value on the date of retirement) $427,500.
The Policeman’s TAXPAYER-PROVIDED retirement benefits are worth (as a present value on the date of retirement) $2,530,000.
The crisis associated with funding Civil Servant Pensions and benefits is NOT a revenue shortfall issue. It is CLEARLY one of EXCESSIVELY GENEROUS pensions and benefits as the above calculations demonstrate.
For 2 similarly situated workers (in pay, years of service, and retirement age) the Policeman’s package of retirement benefits costs the TAXPAYERS almost SIX TIMES what the typical Private Sector employer is willing to pay.
Clearly, if the Private Sector employer provided the same benefits to his workers that the policeman receives, his company would likely go bankrupt in short order.
These unreasonable benefits have been provided due to a political structure that rewards politicians for “giving-away-the-store” of not their own, but TAXPAYERS’ money, for personal gain. This “gain” may simply be to feed their ego, garner the union support needed to get re-elected, or perhaps worse … for current or future personal financial gain.
In any event, the current situation is without doubt unsustainable and without MAJOR REDUCTIONS to the benefits provided CURRENT (not just NEW) public employees, towns, cities, and states will be filing bankruptcy with increasing frequency.
Unfortunately, since difficult change is delayed and delayed and delayed to avoid the confrontation (with very aggressive unions), important public services will suffer tremendously until action is FINALLY taken.
I’m sure there will be Civil Servants (with vested interest in the status quo) that will say my figures are wrong. Estimates are necessary, and small variations in assumptions will change the figures to a minor degree, but the final relationship is quite accurate …. TAXPAYERS are forced (via their taxes) to pay almost SIX times as much as the Private Sector employer is willing to pay.
By-the-way … any qualified actuary can verify the reasonableness of my figures and conclusions, …. and I would welcome the actuary who offers to do so ……
By-the-way ……… I didn’t mention it above, but it’s worth a comment …… Civil Servants often take advantage of what’s commonly called “spiking” to unfairly boost one’s pension just before retirement. This takes many forms: large last minute promotions and/or raises, excessive/unusual overtime, cashout of sick and/or vacation days with the payout included in “compensation” for pension calculation purposes, or inclusion in “compensation” of miscellaneous “allowances” (housing, vehicle, parking, uniform, etc.).
None of this is EVER allowed in Private Sector employer-sponsored plans (employers are spending THEIR OWN money, not TAXPAYER’S, and would never be so foolish). For every $10,000 of “spiking” that works its way into the above Policeman’s “compensation”, it costs the TAXPAYERS an additional $10,000x.03×30×1.5×15=$202,500 ! “
Dear Mr. Ring
I find your comments of interest. There is consideralble speculation about costs, but since I have no way of getting my hands of facts about firefighters in Sacramento, I will simply respond about what I do know.
I am a retired Civil Engineer from Caltrans and am Registered in the State. My final salary was $110,000 per year. California, when billing to outside agencies for my work adds a markup of around 51% for payroll costs, including pension, health insurance,SS, etc. I am reasonably sure they have figures to back this up.
I think this a good pay. However,I would really not want to work 2 24 hour shifts per week unless I was single.
I was offered a job at Santa Fe at the same time as for Caltrans, but turned it down because of the unpredictable working hours.
I think the States money was reasonbly well spent. On two projects alone over two and a half years I saved the State about half a million dollars in change orders, which certainly paid my salary.
My retirement is $90k per year plus about $10k in health insurance for myself and my wife.
I think this is a good deal, in fact pretty much the same exact deal I signed on for 40 years ago. How do you suggest you go back on an agreed promise to a fireman who has planned on what he was told 40 years ago? I certainly don’t know, if the Constitutions take on Contracts means anything. And if you nullify that, how can you depend of anything?
Your comments on this would be appreciated.
Although per my first comment, I now believe Outsourcing may be our ONLY salvation, here is some more food for thought …
State & City Budgets are stressed all over the nation with supposed one-time “fixes”. Let me tell you something … this isn’t going to be a one-shot fix. Most States, cities, & towns have a FUNDAMENTAL structural problem which MUST be addressed.
Long ago, Civil Servant “cash” pay was quite a bit less than Private Sector pay in comparable jobs. This justified a better pension & benefit package.
Per the US Gov’t BLS, cash pay alone is now higher in the Public Sector than in the private sector. This justifies AT MOST comparable (but certainly NOT better) pensions & benefits.
More valuable Public Sector pensions comes from multiple sources: (1) higher formula per year of service, (2) basing pensionable compensation on the final 1 year instead of 3 or 5 years of service, (3) including post retirement COLAs, (4) arbitrary end-of-career promotions or excessive raises to “spike” the pensionable compensation, (5) allowing the soon-to-be retired to load up on overtime includable in pensionable compensation, (6) including payouts of unused vacation, unused sick days, uniform, parking, and other miscellaneous “allowances” in pensionable compensation, etc.
In MOST Corporate Pension Plans NONE of the above are included. Why? Because the cost would have to be paid for by the employer, and none of these being really justified, employers are not foolish enough to waste THEIR money this way.
In the Public Sector ALL, of the above are generally included/allowed. Why? Our Politicians aren’t spending THEIR money, their spending YOUR money (via your taxes) while they curry favor for campaign contributions and election support.
Sometimes, Corporate Sector Pension Plan sponsors realize that the plan is no longer affordable, so they reduce cost via formula reductions, increases in the retirement age, etc., for NEW employees and for FUTURE years of service for CURRENT (yes CURRENT) employees. This is ROUTINE in the Private Sector and is allowed by ERISA (the Federal Law that governs Private Sector Plans).
Just as in the Private Sector, CURRENTLY EMPLOYED workers in the Public Sector have already “accrued” pension benefits for PAST service. To this will be added benefits for FUTURE years of service. However, in the Public Sector (and there are variations from State to State) the ability to reduce the pension formula for FUTURE years of service for CURRENT employees is “questionable”.
Of course, the employees and their Unions say it cannot be reduced for anyone already employed (even for those very recently hired). There are many variations, e.g., NJ’s Office of Legislative Service said that cannot be changed only for current employees who already have 5 years of service. In some States, the rules that govern such potential Plan changes are in the State Constitution. In others, in Laws/Regs., and in others via Court Case law.
One important consideration in examining the DIFFICULTY in reducing pension for (FUTURE years of service ONLY) for CURRENT employees is that the legislators, judges, and staff (such as in the NJ example above) that “opine” that such reductions are not allowed are THEMSELVES participants in these same pension Plans and would be negatively impacted by such formula reductions.
Hence, they are hardly disinterested parties, but come with a built-in conflict of interest. These persons should not be making decisions that favor THEM (as beneficiaries of their own decisions) but add to the taxpayers’ burden.
The financial situation across the country is getting more dire, and the ROOT CAUSE must be addressed. Stated another way, we must once and for all, address the STRUCTURAL imbalance between income and expenses.
Way too much focus has been placed on the government entity’s neglect to “fully fund” the Plans. This is certainly true (to varying degrees across the nation). What is often given short-shrift is the “expense” side of the income statement. No one ever says …gee … funding a VERY generous pension plan is VERY expensive, and then moves to the logical next questions, that being, is it too expensive BECAUSE it is too generous and perhaps we such make it less generous.
But what exactly is “too generous”? Well, given that “cash” pay in the Public Sector now exceeds that of the Private Sector in comparable jobs, maybe a Public Pension Plan that is more than MARGINALLY higher is too expensive.
Above, I enumerated 6 items which make Public Sector Plans more expensive. Few people not educated in pending funding understand just how VERY valuable (and hence EXPENSIVE) these differences are. One thing is certain, the Public employee Unions know. That’s why they fight tooth-and-nail to stop changes.
Here is an accurate comparison of the costs of Public vs Private Sector retirement packages (pension plus retiree healthcare, if any) …. The value (i.e., cost to purchase the pension/benefit package) at the time of retirement of the employer-paid (i.e., Taxpayer) share of the typical (non-safety) worker’s retirement package is 2-4 times that of employer-paid share of the comparable (in pay, years of service, and age at retirement) Private Sector worker, and that multiple increases to 4-6 times for safety workers (policemen, firemen, corrections officers, etc.).
I’ll bet you had no idea that this HUGE disparity exists. Given that it does, and given that Public Sector “cash” pay by itself is higher, is it surprising that States, cities, towns are being so squeezed to fund this? Not at all.
So what is the solution? Of course Civil Servants deserve “fair” pay as well as “fair” pensions & benefits, but “fair” should mean COMPARABLE to what their Private Sector Taxpaying counterparts get. Right now, this is anything but true.
The EXPENSE side of the income statement has been neglected far too long. To reach a “structural balance” we need to reduce current pensions (as well as retiree healthcare subsidies) in the Public Sector to a level comparable to that of the Private Sector. A few more progressive States & Cities (or perhaps, those in the greatest financial pain) know they must look at this and are beginning the baby steps.
But the BIG problem is the conflict-of-interest conundrum that reducing pensions for CURRENT employees will (in many cases) reduce there own pensions. So, they ONLY propose plan reductions for NEW employees. To be fair, this may be happening not because they just “cave” on addressing such reduction, but because they really believe it is not possible.
A disinterested party might look a bit harder. Perhaps we need to get opinions from outside this circle, e.g., from university scholars. Or perhaps challenges should be brought in the Federal Court system where the conflicted parties are no longer the decision-makers.
Not addressing the huge cost of future accruals for current employees is wishing-away current financial reality. The dire financial problem is here NOW. Reducing pensions ONLY for NEW employees will have little impact for 20-30 years until they begin to retire. We will never make it. But also, given that most (objective) observers agree that current pensions & benefits are overly generous (compared to Private Sector plans … while appropriately taking into account compensation levels), why should we CONTINUE to layer on MORE excessive pension accruals?
It’s been said that the first step in getting out of a big hole is to STOP DIGGING. Well, every day we allow the current plan to continue, the hole gets deeper.
Somehow we need to find the way to reduce pensions (not for PAST) but for FUTURE years of service for CURRENT employees. That, along with a significant reduction in the retiree healthcare subsidy just MAY save us.
Charles – there is a lot here, but let me answer one of your points emphatically. NOBODY thought, 40 years ago, they were going to earn more when they were retired than what they would be making at the peak of their careers. Public sector pensions in California didn’t go haywire until 1999, when the state legislature increased them – RETROACTIVELY – by 50%. If pensions were rolled back to 1999 benefit formulas, if spiking were eliminated, and if employee pension fund contributions (via withholding) were equal to their employer’s pension fund contributions (just like with social security), this problem would be solved.
But nobody employed before 1999 thought they would get the deals they are getting now.
Ed: I don’t earn more in retirement than I did in earnings. I get about 81% of that after 40 years. I think that is ok and eventually I will get SS, whick I paid into for for 45 years, although reduced because I have a Calpers retirement. My retirement was increaased by about 18% in 1999, not 50%. You are thinking about people who wear badges.
I doubt you remember this but retirees got an increase of about 20% in 1970 because Pers had enough cash. That was retroactive also.
So do we nullify the Constitutional guarantee of Contracts or not?
And if we do, how do we deal with the anarchy which is sure to follow?
Your response is eagerly anticipated.
Charles
Considering that the vast majority of public sector pensions is paid for by taxpayers (not the employees, and NOT from “investments” … hogwash entirely) who would NEVER get such “retroactive” benefits from THEIR employers, why is it fair that they (the Private Sector taxpayers ) should pay for RETROACTIVE pension/benefit credits for you? Are you MORE DESERVING of a vastly better deal than those that pay your way ?
To tough love
Outsource it all. I have been the administrator of private contracts doing State work. The persons doing the jobs earn about the same as State employees, but get markups of about 150%. Caltrans gets 51%.
So you really want to throw away this kind of money???!
” Considering that the vast majority of public sector pensions is paid for by taxpayers”
Where do you get this from. The vast majority of public pensions is paid for from Calpers (75%) plus for State employees anywhere from 5 to 9% and from the State coffers the rest.
Your nose is growing there Pinoccio. Aren’t you ashamed for such a total lie?
How can such blatant lies as from toughlove be allowed in this blog? “the vast majority of public sector pensions is paid for by taxpayers…” A total lie. Come on Ed. Repudiate this liar!
Charles,
Interesting. YOU feel I’m a “liar” while you are so incredibly uninformed, no doubt by the garbage put out by your Unions, and repeated endlessly by self-serving Civil Servants.
For example, you challenged my comment that “the vast majority of public sector pensions are paid for by taxpayers” by responding that “The vast majority of public pensions is paid for from Calpers (75%)…”.
Well where do you think CalPERS gets that money …. from the “tooth fairy” ? It gets it by billing the cities and towns who then get it via taxing their residents.
And please, don’t tell me its mostly from investments. There are ONLY 2 original contributors, the employee, and the employer (meaning the taxpayers). There is no 3-rd party contributor called “investments”. In the absence of the taxpayers’ contributions, there would be little investment income. And, had the taxpayers not been forced to contribute to these excessive Plans, all that investment income from THEIR contributions would have stayed in the taxpayers’ pockets.
You actually stated it yourself …. the employees put in 5-9% of salary (and we all know that often the city picks up employees’ share as well). It costs 40-50% of pay year-in year-out to fund these excessive Plans. The 5-9% of pay funds 10-20 % of the retirement package … AT MOST.
Think for yourself, and stop echoing the garbage from your Union.
Charles,
And as to your response to my comment recommending Outsourcing, please try an experiment ….
Spend one full day following a Private sanitation truck and a Public Sector truck manned by Civil Servants. Invariably, the Private sector workers work faster and longer hours …. and for less than half the pay and benefits.
This is but one of hundreds of similar situations that scream “outsourcing”.
Charles: You have asked me to repudiate certain assertions by another commenter. There is far too much here to go through all of it, but I would like to share some calculations with you based on rates of return. Because how much money the taxpayer contributes (public sector employer pension fund contributions), how much money the employee contributes (withholding from the public sector employee’s paycheck), and how much money is contributed based on the return on the invested funds – will differ greatly depending on how well the pension fund earns a return, even if all else is held equal. Here is an example:
If you qualify for a pension equal to 90% of your final year salary, which is fairly common among public sector employees – especially in public safety jobs – who have spent their entire career in the public sector, and if your salary doubles in inflation-adjusted dollars between when you began your career and when you retire, and if you work 30 years and then live for 30 years as a retiree, here are the numbers:
At an inflation-adjusted rate of return of 4.75% per year, which is CalPERS official rate of return they use when they project their liability and determine contribution percentages, the pension above will require an annual contribution equivalent to 33% of the employee’s salary each year they work, and ultimately, 74% of their pension payments will come from returns on the invested funds, and 26% of their pension payments will have to be contributed via the 33% of salary contribution each year.
Now here’s the tough part, so please stay with me:
At an inflation-adjusted rate of return of 2.375% per year, which is the rate of return I think CalPERS should use when they project their liability and determine contribution percentages, the pension above will require an annual contribution equivalent to 64% of the employee’s salary each year they work, and ultimately, 49% of their pension payments will come from returns on the invested funds, and 51% of their pension payments will have to be contributed via the 33% of salary contribution each year.
Now in the case we’re considering here, which is the Sacramento City Fire Dept., ZERO amount of money each year is withheld from their paychecks in order to fund their pensions. This means the taxpayers are footing the bill for about 50% of the pension liability, with, using the conservative, low risk rates of return I think CalPERS ought to be using, the other 50% coming from returns on the invested funds.
This is the 640 billion dollar question, Charles. What rate of return can CalPERS really earn? I think it is very dangerous to continue to assume they can get 4.75%, after inflation. It impels them to make riskier and riskier investments because they believe they have to achieve these returns. And these returns are probably not going to be forthcoming as we struggle to pay off debt, indeed, as we pile on additional debt, and as we try to avoid deflation.
Finally, why on earth should public sector pension funds pour money into Wall Street, creating all sorts of potential for corrupt, incestuous manipulation of private industry and the markets, with public sector employees reaping all the upside in the form of defined benefits that are 5x what social security offers, while private sector workers have to pay higher taxes to make up the difference when the Wall Street investments don’t perform to expectations? Do you think that’s right?
Ed,
This is the best article I have seen yet on breaking down the numbers for total California firefighter and Public Safety compensation. I’m no expert but I have served in both the military and currently working in the Public Sector so I have a stake in what happens. I would disagree with Oz in his post that US Military service members average 100K in total compensation. I believe Oz inflated his numbers to try to justify the outrageous 180K+ firefighter compensation.
1. Ed, your analysis did not include the top management of the fire department. If you do not include military upper management like Navy Captains, Admirals, Army Generals and Colonels this would bring down that average military compensation quite a bit. On the other hand if you included the top management of the fire department for your average in this article I bet the average compensation for California firefighters would be $250K+.
2. Also, is Oz just comparing the US service member compensation of those who will actually do 20 years or is he comparing all service members from a Private to a General Most US service members do not do 20 to 30 years. They do 3 or 4 years and get out. If you really wanted to do a real comparison between California Firefighters and Military service member salary and compensation. You would have to use the comparison of the enlisted military service member to the average rank and file firefighter and the Military Officers to firefighter upper management. You would almost have to break down these two groups separately. Ed, I would really be interested if you break down Oz’s figures that service members get compensation of 100k per year.
3. Another fact, US Military service members pay into Social Security at 6.2 percent (Total Employee/employer 12.4%) of their salary which the California firefighters do not pay into. I have read that up to 20% of social security payments is to pay for a social welfare component. Social Security benefits are paid out so that low income and disabled workers and others who have never paid into the program get more than they paid in. Because California firefights do not pay into social security their retirement is not subject to this welfare component. Ed, I did not see this Social Security welfare component factored into the compensation for the firefighters.
4. Fact, My brother just retired last year after 20 years in the Marines at E-8. He gets $2,500.00 per month and free healthcare for the rest of his life. He estimates his total retirement compensation at 50 to 55K. He was not allowed to spike his retirement with saved up vacation and sick time, uniform and car allowance. His job was just as dangerous if not more dangerous than a firefighter and he does not get the $150K firefighter yearly pension.
5. Ed, You also forgot to mention in you compensation comparison that firefighters can retire at 50 to 55 which also adds value. Not to mention their pension retirements are guaranteed by the taxpayer. Also, If a firefighter or a public safety member (Police) gets hurt or goes out on one of those sham disability retirements. Their retirement income is shielded of California state taxes. This tax free disability retirement is not given to injured service members.
I for one appreciate the service that firefighters and public safety provide the public. I’m scared to death at what is going to happen with these Unsustainable Public Sector pensions and healthcare benefits. The numbers do not lie, Oz and Chris are just ignoring the inevitable that Public Sector compensation will have to be cut.
Tom: You make a lot of good points. I think one bears particular mention – your point about the social welfare component of social security. There are many aspects to social security that are very different from public sector pensions, and one that is consistent with the social welfare component is the progressive nature of the benefit. That is, as your lifetime earnings go up, the percentage of your earnings that you will receive from social security goes down. For example, if you retire making $35K per year, you will get $12K in retirement, a payout of 36%. If you retire making $65K per year, you will collect $19K per year, a payout of 30%. And if you retire making $125K per year, you will collect $26K per year, a payout of 21%. You can find this information here:
http://www.vaughns-1-pagers.com/economics/ssa-monthly-payments.htm
There is nothing similar to this when calculating public sector pensions, and there should be. There are a lot of good reform proposals that would put a percentage and absolute cap on pension benefits, as well as suspend pension benefits (just as social security is suspended) if the recipient takes a new job.
In general, social security is a good model for what a defined retirement benefit, collectively funded by taxpayers, should be. If you pay off your debts, pay off your mortgage, and save a little on the side during the years you work, you should be able to live on social security. Public sector pensions were designed, back in the days when public employees made less than private sector workers (no longer true), to modestly exceed social security in value. Instead they have become ridiculously inflated and we can’t afford them.
ToughLove. (or maybe just Tough)
I will say it again. Yes, my entire paycheck comes from public funds. That doesn’t make my pay for my work belong forever to the taxpayer. I own a house in California. When are you going to take it away from me? After all my wages came from public funds! When my children were born the health insurance was paid for with public funds. When do you collect them? What is this nonsense that I work for pay but because the funds come from taxes means the money I worked for does not belong to me? This is totally senseless reasoning! When I went to work for Caltrans in 1969 we had a contract that said I would be paid for my work. I have never followed a garbage truck to see if private companies work harder than public ones. I doubt if Tough Love has either. I know that as an Engineer for Caltrans I worked efficiently and hard for four decades. I don’t recall Toughlove following me around for forty years in the Mojave desert during that time. I would probably have remembered saving his life in the California desert if he had been there.
I undoubtedly made a good return on my retirement. I again state that was the contract when I went to work for the State. I get about 81% of my final salary after working for 40 years starting at the age of 18.
Is that outrageous? And if so, why? California said that was the Contract, I accepted and certainly fulfilled my portion of the deal. Once again I ask, what part of the United States Constitution regarding Contracts do you not understand? I am quite sure you would want your rights recognized by the Constitution. Why do you want my rights to be abrogated?
Tell me where I am wrong here Mr. Ring. If I work for my salary and the State agrees to pay into my retirement, where am I illegally taking taxpayers money? I am really curious to know. I did my part, why do you say I didn’t?
By the way, California State employees are not allowed to spike their pensions. We (misc. employees) don’t get 3% at fifty either. I don’t work for the City of Bell or the CHP.
No answer. No surprise.
It must be difficult to be so filled with hate for your fellow man. Some day you might realize that others who work hard are entitled to what they earn. All the same, I hope you someday learn to relax and enjoy what is available on this good earth. Get some rest. I hope that you will learn to respect others someday.
A public employee provides a service for a salary. Once that service has been provided, the salary paid for it belongs to the public sector employee that provided it. It is his money as surely as the money the employee just left at the meat market for the good steak now belongs to the butcher. TL’s has a hatrid of public employees, and his/her rantings are what I call “garbage”. Unions are a complement to the public sector–not part and parcel of it.
Tom-
You are not disagreeing with my numbers of average military
compensation, but rather the Congressional Budget
Office’s. I posted the link in my first post.
You should try posting links, or pointing us to factual information
instead of just posting hypotheses.
Here’s a current one for OCO- a CURRENT job opening for Sacramento PD.
http://agency.governmentjobs.com/saccity/default.cfm?action=viewJob&jobID=215797&hit_count=yes&headerFooter=1&promo=0&transfer=0&WDDXJobSearchParams=%3CwddxPacket%20version%3D%271%2E0%27%3E%3Cheader%2F%3E%3Cdata%3E%3Cstruct%3E%3Cvar%20name%3D%27FIND%5FKEYWORD%27%3E%3Cstring%3E%3C%2Fstring%3E%3C%2Fvar%3E%3Cvar%20name%3D%27CATEGORYID%27%3E%3Cstring%3E%2D1%3C%2Fstring%3E%3C%2Fvar%3E%3Cvar%20name%3D%27TRANSFER%27%3E%3Cstring%3E0%3C%2Fstring%3E%3C%2Fvar%3E%3Cvar%20name%3D%27PROMOTIONALJOBS%27%3E%3Cstring%3E0%3C%2Fstring%3E%3C%2Fvar%3E%3C%2Fstruct%3E%3C%2Fdata%3E%3C%2FwddxPacket%3E
Looks like it requires quite a bit more than a GED to me…
Ed-
Sorry, I think I stirred up a hornet’s nest.
Charles: I’m not sure I’ve ever said anyone is “illegally” taking taxpayer’s money. The point about public sector pensions, and public sector compensation in general, is that in places like California, it has now gotten so far beyond what is normal in the private sector that (1) the trade-off wherein a public sector worker gets a job for life but makes less than in the private sector is no longer valid, creating understandable resentment among private sector workers who pay the taxes to fund this, and (2) we can’t afford it. Our government deficits and ongoing debt would be manageable if we restored the classic trade-off, less money for more security with government work compared to private sector work. I have tried to refrain from displaying much emotion in these articles because the numbers are what needs to be communicated. If you don’t take the time to review the numbers, it is hard to appreciate the the other position. In my opinion, if public sector compensation packages aren’t reduced, soon, we are going to bankrupt this nation and endure a real depression, not some “double dip” or whatever. We need to use our deficit spending to invest in projects that will make energy, water, transportation and other resources cheaper for consumers and business, as well as invest in high-tech strategic military spending. These uses of deficit spending will yield long-term returns in the form of enhanced national competitiveness and national security. Instead we are using our limited ability to continue deficit spending to pay over-market compensation to public employees. Such folly must be challenged for the sake of our future as a nation.
We need to use our deficit spending to invest in projects that will make energy, water, transportation and other resources cheaper for consumers and business, as well as invest in high-tech strategic military spending. These uses of deficit spending will yield long-term returns in the form of enhanced national competitiveness and national security. Instead we are using our limited ability to continue deficit spending to pay over-market compensation to public employees. Such folly must be challenged for the sake of our future as a nation
=================
Exactly what I have been saying all along-we are doing for the states what the states cannot do for themselves-run state budget deficits.
Instead of making the states do what is needed, cut their employee compensation, drastically, we prop up the unsustainable comp. But this can has been kicked as far down the road as it can be kicked, there are no more gimmicks of schemes to kick the can further down the road-and CA’s current unsigned budget proves that up.
The only difference here is that the nation pays back the “stimulas” (aka gov employee welfare/workfare) instead of the states.
Here’s a current one for OCO- a CURRENT job opening for Sacramento PD.
Looks like it requires quite a bit more than a GED to me…
===================
Sac has added in higher education requirements, but those added requirements are NOT required for the job itself as mandated by POST, only a GED is, and that is the standard for 99% of LE jobs in the state.
I have to also ask why you want to keep comparing a cop or FF job to the military???? They are not even remotely similar. But that is the only job you can even come close to a cop/ff comp, yet it has nothing to do with the jobs in this state.
SeeSAW
August 31st, 2010 at 2:38 am
A public employee provides a service for a salary. Once that service has been provided, the salary paid for it belongs to the public sector employee that provided it. It
==============
And by that same standard once the service has BEEN provided the employee cannot be given 50% retroactive pension increases for work that has already BEEN provided, aka SB400.
A summary of my thought might be helpful:
(1) Today, in most positions (with the exception of certain high level professions such as doctor, and granted certain engineering positions), public sector workers make more in cash pay , and WAY more in pensions & benefits than Private sector workers in comparable positions …. per the US Gov’t Bureau of Labor Statistics
(2) The taxpayer paid-for share of the current retirement packages (pensions & retiree healthcare) in the public sector are 2-4 times greater (4-6 times for safety workers) in value than the employer paid-for share of their retirement packages of comparably paid Private sector workers retiring at the SAME age and with the SAME years of service.
(3) Because of (1)above (the higher pay in the Public Sector), there is absolutely no justification for (2) above (the VASTY higer pensions & retiree healthcare benefits).
(4) The are 2 sources of funding for pensions & retiree healthcare, the employee and the employer (which means the taxpayers). Of course investment income is (hopefully) earned on the balances accruing from the employee & taxpayer contributions. Due to the extra ordinary level of benefits promised, funding these pensions & benefits has been shown to require 40-50% of pay every year, of which the employees typically contribute 5-10% of pay or roughly 10-20% of the total cost. The taxpayers pay the balance, 80-90% of total costs. The investment income earned along the way does not change that realtionship ….. ask an economist if you do not believe me (it simply an element of pre-funding vs pay-as-you-go)
************************************************
And Charles, I glad you had a successful career, and certainly I am not looking to take anything away from you as a retiree. However, if you looked at your counterparts in Private industry, I challenge you to find anyone (even those with 40+ years of service) that has a pension of 81% of final pay (30% is typical, and 50% would be on the very high end). But that’s only part of it …. your pension is no doubt COLA adjusted, while Private sector pensions NEVER have guaranteed annual COLAS and rarely get any at all. The existence of a COLA provision increases the “value” of a pension from 50-100% (depending on the age at retirement, the level of inflation, and the limitations of a cap on the annual increases). So, the Private sector worker’s pension of (the higher end) 50% of final pay without a COLA would be roughly equivalent to a COLA-adjusted pension of somewhere between 25-33% of final pay.
Now, where are we with all of this ……. On an apples-to-apples basis, the comparably paid Private sector worker’s pension (adjusted to a COLA-adjusted basis) is 25-33% of final pay while yours is 81% of pay ….. all while the taxpayers pay for 80-90% of your vastly greater pension.
And you think this is fair ?
While it would be wrong to reduce the pension of those already retired, we DESPERATELY need to reduce (to a level no greater than the growth in Private sector pension Plans) the growth in pensions for FUTURE years of service for CURRENT (yes CURRENT) employees.
My recommendations for outsourcing (wherever possible) stem from the reluctance of complicit politicians/legislators to adequately address the significant pension formula reductions needed as well as the legal barriers (especially in States like California).
You shouldn’t discount the VERY likely possibility that with reductions in benefits of a significant magnitude (for CURRENT workers), these Plans WILL fail …. and that will likely impact retirees as well as current workers.
A summary of my thought might be helpful:
(1) Today, in most positions (with the exception of certain high level professions such as doctor, and granted certain engineering positions), public sector workers make more in cash pay , and WAY more in pensions & benefits than Private sector workers in comparable positions …. per the US Gov\’t Bureau of Labor Statistics
(2) The taxpayer paid-for share of the current retirement packages (pensions & retiree healthcare) in the public sector are 2-4 times greater (4-6 times for safety workers) in value than the employer paid-for share of their retirement packages of comparably paid Private sector workers retiring at the SAME age and with the SAME years of service.
(3) Because of (1)above (the higher pay in the Public Sector), there is absolutely no justification for (2) above (the VASTLY higer pensions & retiree healthcare benefits).
(4) The are 2 sources of funding for pensions and retiree healthcare, the employee and the employer (which means the taxpayers). Of course investment income is (hopefully) earned on the balances accruing from the employee & taxpayer contributions. Due to the extra ordinary level of benefits promised, funding these pensions & benefits has been shown to require 40-50% of pay every year, of which the employees typically contribute 5-10% of pay or roughly 10-20% of the total cost. The taxpayers pay the balance, 80-90% of total costs. The investment income earned along the way does not change that realtionship ….. ask an economist if you do not believe me (it simply an element of pre-funding vs pay-as-you-go)
************************************************
And Charles, I glad you had a successful career, and certainly I am not looking to take anything away from you as a retiree. However, if you looked at your counterparts in Private industry, I challenge you to find anyone (even those with 40+ years of service) that has a pension of 81% of final pay (30% is typical, and 50% would be on the very high end). But that\’s only part of it …. your pension is no doubt COLA adjusted, while Private sector pensions NEVER have guaranteed annual COLAS and rarely get any at all. The existence of a COLA provision increases the “value” of a pension from 50-100% (depending on the age at retirement, the level of inflation, and the limitations of a cap on the annual increases). So, the Private sector worker\’s pension of (the higher end) 50% of final pay without a COLA would be roughly equivalent to a COLA-adjusted pension of somewhere between 25-33% of final pay.
Now, where are we with all of this ……. On an apples-to-apples basis, the comparably paid Private sector worker’s pension (adjusted to a COLA-adjusted basis) is 25-33% of final pay while yours is 81% of pay ….. all while the taxpayers pay for 80-90% of your vastly greater pension.
And you think this is fair ?
While it would be wrong to reduce the pension of those already retired, we DESPERATELY need to reduce (to a level no greater than the growth in Private sector pension Plans) the growth in pensions for FUTURE years of service for CURRENT (yes CURRENT) employees.
My recommendations for outsourcing (wherever possible) stem from the reluctance of complicit politicians/legislators to adequately address the significant pension formula reductions needed as well as the legal barriers (especially in States like California).
You shouldn’t discount the VERY likely possibility that with reductions in benefits of a significant magnitude (for CURRENT workers), these Plans WILL fail …. and that will likely impact retirees as well as current workers.
Mr. Ring
Some of ToughLove’s comments are irritating and I sometimes fail to make sure you know I am referring to him and not to you.
I don’t appreciate some of his comments regarding public employees. It makes no sense to keep saying public employees don’t work as hard as private employees. How in the world would he know? And I stand by my statement that I earned my salary and my benefits. If anyone can make a legal case about the retroactivity of the raise in pensions in 1999 the most I would owe back is 13.5%, NOT 50%. Again, I am not CHP.
Maybe salaries and benefits for public employees need to be cut. But that doesn’t excuse the type of rhetoric I see from the likes of ToughLove. We don’t need people with 1930s KKK attitudes to solve these kinds of problems.
Also, Calpers and Social Security have one thing in common, they have both been shortchanged by politicians.
Quoting Charles ….”We don’t need people with 1930s KKK attitudes …”
Now that was cute.
You don’t like the truth ……… that your (80-90%) taxpayer-funded pensions/benefits are excessive, unsustainable, and GROSSLY unfair to taxpayers ….. so you resort to name-calling.
How mature !
Tough Love
So tell me, how would you fix this? And I agree some fixing needs to take place.
ToughLove
You seem to forget your name calling on the Sacramento Bee. I have been reading your comments for a long time.
I get 81% of salary after working for forty years at age 59. If AB400 had never been passed I would have received 80% at age sixty. Quit referring to CHP and the city manager of Bell, California. It is not a reasonable comparison.
ToughLove and Mr. Ring
Just the facts. California State employees can’t spike their pensions with overtime pay, vacation buyouts, uniform allowances, or anything else except sick leave. Sick leave can’t be cashed out to add to your final years salary. It only counts as extra time worked for final years. I think that makes sense. You never took the time off so you get a credit for it, not in increased salary, only in time worked.
If you want to reduce pay and benefits going forward, go ahead. Less people would want to work for government for any length of time since eventually the economy will recover and the money is in fact in the private sector for talented people.
Government doesn’t have to make a profit, but the private sector absolutely has to, so they will hire the best.
Quoting Charles Sainte Claire …”ToughLove. You seem to forget your name calling on the Sacramento Bee. I have been reading your comments for a long time.”
I’m not sure what “name calling” you are referring to …. other than on occasional I have called Public Sector Unions a Cancer on Society.
I’ll stand by that one any time.
**********************
As to what I would do to “fix” the current predicament we’re in …. read my earlier comments.
Do you think a fix is laying off employees 3 days a month, threatening them with minimum wage and generally terrorizing them during contract negotiations is a reasonable way to go? That is what our California Governor is doing.
The minimum wage thing is silly.
The 3-day a month “furloughs” lends to an interesting discussion. If that’s 10% less worktime, maybe we can do with a permanent 10% reduction in employees. I’m NOT looking for a fight with you, but government service should be a very limited employer (when the Private Sector simply CANNOT provide the service efficiently). Excessive (unnecessary) government sector employment interferes with normal market forces which should govern wages & benefits.
By the way, rather than complaining how tough government sector “negotiations” have become, you should be glad you have the ability to negotiate. In 2008 and 2009, many Private Sector workers were simply TOLD that there would be no raises or that their pay was being reduced 10% ….. with no option (other than quitting). That’s the world most of us (the Private Sector taxpayers) who fund your rich pensions & benefits life in.
I suggest you take the time to read the first of my two very long comments (way above) developing a policeman’s pension and comparing it to to that of a comparably paid Private sector worker. It’s quite enlightening and and highlights how taxpayers have been hoodwinked by very greedy Unions and corrupt/accommodating politicians who have allowed this to happen.
I never cease to be amazed at the irrational arguments defenders of the exorbitant fir e salaries and benefits dream up to justify taking advantage of the public. I refer now to the comparison with the military made by qz. First, he seems to think that the $181,000 cost of Sacramento firefighters is about the same as the $100,000 cost of a military member. If that is the case I’m sure that he wouldn’t mind reducing firefighters to be exactly the same cost as military. And that will solve the problem.
But, I expect that oz will find a way to wiggle out of his “essentially the same” argument. So, let me point out that firefighting isn’t nearly the same as military service. Firefighters don’t get moved around at the whim of the service; firefighters aren’t deployed for months at time without families; firefighters don’t get shot at. I appreciate what some firefighters have done – certainly at the world trade center 10 years ago – but firefighters aren’t in the top ten most risky professions; more important, there is fierce competition for firefighter positions. Lots and lots of people are very willing to take the risk of the profession. I have heard from a good source that firefighter is the most sought after job in the nation.
Get real oz.
Russell-
Jumping a little late into the game, aren’t you?
If you look at the salary.com link I posted under Ed’s other post “the price of public safety” you see that the average FF in the US earns ~40k pay ~60K total compensation. Significantly less than the average military ~100k total compensation.
The average firefighter, like the average military member, does not have to live anywhere close to Sacramento either.
I have respect for Ed and I value his posts, but the 180k number that keeps getting tossed around is just Ed’s back of the envelope calculations, not an official audit.
My point though, again, is not to compare the jobs, but point out that the “employers” (Uncle Sam or a municipality) are competing for the same caliber of employee.
Bottom line these posts are getting at is that there is a large premium to be paid for healthy people who keep their nose clean.
BTW, it’s not my blog and I can’t do anything about it, but talking about “a good source” and not citing or linking what the source
is only wastes everyone’s time. Please post a link or citation so an appropriate response can be made.
I am real, Russell, and so is Salary.com and so is the Congressional Budget Office.
Oz,
As I stated I work in the Public Sector (Non-Safety) and can only hope I will receive part of my promised Pension and healthcare retirement benefits. I’m also a taxpayer who recognizes the goverment can only tax the public so much and salary and pension benefits for all government workers will eventually have to be brought in line with the public sector. I would love to pay all firefighters and police 180K+ but the money is simply not there.
Looking at Army pay chart you referenced at I think it is highly misleading and is used for Army recruiting propoganda. The examples they used are not the typical average US service member or the average Civilian Job Police Patrol Officer.
http://www.goarmy.com/benefits/total-compensation.html
1. This army recruiting web page states the Congressional Budget Office (CBO) recently estimated that the average Active Duty service member received a compensation package worth $99,000. It does not state if this Active Duty service member includes enlisted service members or Officers or both. It also does not state if this estimated average includes service members who get out after 4 years or do the full 20 or more for the retirement pension.
2. Example used was an enlisted Army Job* Military Police Sergeant Sergeant (E5) with 4 years service married with dependents. Figures do not include bonuses with a Net income listed is $47,278. There is a big difference between $47,278 and $99,000 but they did say that this sample did not include bonuses. I don’t know of any 50K per year bonuses being given out but maybe they give it out to doctors or a jet pilots.
3. The enlisted Army Job* Military Police Sergeant Sergeant (E5) compensation package they used also included special payments that appear to be maxed out which is not typical of the average service member. Also, to get the housing and food allowance the service member needs to be married or at a higher rank. What is the percentage of service members that are married and get the food and housing allowance? In my experience the majority of service members are E-4 and below and are unmarried.
4. The Civilian Job Police Patrol Officer Net Income of $36,368 compensation the Army used in this comparison seems pretty low. In Califorina I would bet that the average pay and benefit compensation package for a Civilian Job Police Patrol Officer with four years experience would be at least 100K if not more. This includes Pay, healthcare and pension benefitgs and other goodies that Ed used that includes “incentive earnings,” “holiday payoff,” “other earnings,” “sick payoff,” “other payoffs,” and “vacation payoff”.
5. The Civilian Job Police Patrol Officer Net Income $36,368 with him paying $12,100 for his healthcare coverage. In most public Sector jobs I have seen the government employer highly substidizes healthcare premiums or provide it for free for the employee. In my case I get it for free but have to pay in extra $300.00 per month to have my wife and two kids covered. I have never heard of a Civilian Job Police Patrol Officer in any state that pays the full amount of his own healthcare ($12,100). The typical Civilian Job Police Patrol Officer they used for comparison is certainly not the typical public safety compensation.
As far as enlisted service member compensation of $99,000. I could see an E-8 Master Sgt with 28 years in the Military (Planning to retire at 30 years and will get 75% of his pay in a pension). Who is married with children who is max out on all the special pay allowances. The higher in rank you are and the longer you are in you get more in food, housing, clothing, hazzardous payments, family seperation allowance, sea pay, flight pay and so on. I could see this enlisted service member getting $99,000 in total compensation but it is not typical. The Army is skewing the average Active Duty service member compensation thus it is not objective and should not be used as a comparison to a Califorina firefighter.
Thanks, Tom
Fake, I’ll just have to start playing the violin, because your complaint is nothing new. Something happened that you think was not fair, and you just whine about it continuously. Do you get equally upset if employees in a private company get a profit sharing dividend? The former Governor and current AG, Brown, has written that the CA Legislature has adopted all enhanaced pension formulas and made them retroactive, for the past 97 years. They have the power to pass new legislation to prohibit retroactivity of pension enhancements, in the future. In my own case, the enhancement of my former pension formula from 2% at age 55 to 3% at age 60, resulted in my receiving a pension that is 21% higher than it would have otherwise–not 50%. My former entity has gone back to the old 2% at 60 formula for miscellaneous employees and 3% at 50 for public safety.
Correction to my previous post: My former entity has gone back to a pension formula of 3% at 55 for new public safety employees.