CalPERS Actuary Admits What Most of Have Known–Pensions Are Unsustainable in Present Form –
CalPERS Actuary Admits What Most of Have Known–Pensions Are Unsustainable in Present Form – But the more serious threat lies in the longer term and it may be a ticking timebomb. Ed Mendel who runs a blog, Calpensions had a piece appear in the Capitol Weekly Wednesday. In it, he quotes Cal PERS chief actuary suggesting what many have been saying for months or even years. He admitted things were unsustainable.
Ron Seeling, the CalPERS chief actuary, described the process used to “smooth” the rate increases that will be imposed on the 1,500 local government agencies in CalPERS in 2011 in the wake of the stock market crash.
Instead of a rate increase of 4 to 20 percent of pay, the smoothing will reduce the rate hike to a more manageable 0.5 to 2 percent of pay.
“I don’t want to sugarcoat anything,” Seeling said as he neared the end of his comments. “We are facing decades without significant turnarounds in assets, decades of — what I, my personal words, nobody else’s — unsustainable pension costs of between 25 percent of pay for a miscellaneous plan and 40 to 50 percent of pay for a safety plan (police and firefighters) … unsustainable pension costs. We’ve got to find some other solutions.”
A few weeks ago the Vanguard ran a story on the city of Davis’ pers contributions and the graph alone based on the rate smooth projections should be enough to frighten anyone.
As you look at that graphi, remember that graph only includes a couple of years of the rate-smoothed projections.
From 1986 to 1999 the city paid an average 6% contribution rate of the overall pension to miscellaneous employees and around 12% to public safety employees which up until 2005-06 were separate (and are now on the same public safety plan).
It was during the period of superfunding when the investment market was producing more money than needed that pensions went up to 3% at 50 for police and fire. In fact, in 1999-2000, the city paid zero percent of contributions for police, fire, and misc. employees. but within just a few years by 2004-05, the city was paying over 20% contributions for public safety.
In the historical context it almost makes sense that the city would bump up the pensions to 3% at 50. The economy was rolling, the city wasn’t having to pay into it, and it seemed like a small price to give the public safety employees especially in the wake of 9/11 when we say what happened to firefighters and public safety employees were seen on the front line of the war on terror. Riding that wave, we see public safety employees going from making in the $30 and $40K range in salary at the beginning of the decade to their current salaries nearing $100K and well over that in total compensation.
What is less explainable is the change in 2007-08 where the city bumped up misc. employees to 2.5% at 55. Although that was approved under the condition that employees contribute an additional 1% to off-set the costs of the higher pension.
For 2009-10, the city will be paying 12.5% of misc employees contributions and 22.75% of public safety employee contributions. On the other hand, employee rates have remained virtually unchanged. In 1986 misc. employees paid 7% of their contributions and police and fire 8%. This year it’s 8% and 9% respectively. Thus employer rates have practically doubled (and the principle has gone up as well) from the 1990s while employee rates are unchanged.
Perhaps the Davis City Council might heed the words of Dwight Stenbakken of the League of California Cities:
Dwight Stenbakken of the League of California Cities told the seminar that pension benefits are “just unsustainable” in their current form and difficult to defend politically.
“I think it’s incumbent upon labor and management to get together and solve this problem before it gets on the ballot,” he said.
That means now for the city of Davis who is in the midst of its labor talks. What labor advocates need to understand is that if they do not fix the system, someone else will fix it for them. Look no further than Prop 13 which fixed the problem of people being priced out of their homes because of the rising property value assessments raising the taxes on properties that were purchased with more modest means. It fixed that problem but imposed a number of more draconian fixes on the system.
One option that is being posed is the drive to replace the current “defined benefit” plan which guarantees a monthly check with a “defined contribution” plan that is more like a 401(k), similar to the private sector plan. Other suggestions include extending retirmeent ages and capping pension payments at two-thirds of the final payment.
The governor has also looked at a two-tier pension reform system which would kick in some sort of lower benefits for newer employees.
The point to make here is that if labor and management do not fix this system soon, it is reaching a critical mass. There is increasing pressure on both sides of the aisle to fix it.
While I have been a huge critic of the costs of a 3% at 50 and even a 2.5% at 55, I do not see the problem as extending to all pensions for all public employees. There is a good deal of difference between the individual who earns over $100,000 as a final salary receiving 3% at 50 and the individual who earns less than $40,000 receiving 2% at 60. However, unless the problem is fixed, the people at the bottom will face the same wrath as the people at the top.
The problem that Davis faces in isolation is the continued pressure to compete with neighboring locales. It is a problem acknowledged by League of Cities’ Dwight Stenbakken.
“The excuse that I’ve always heard is, “We don’t want to adopt these retirement formulas, but I have to because our neighbors adopted it and we have to be competitive in the labor market,” said the League of Cities’ Stenbakken.
He said eliminating all options and returning to pre-SB 400 retirement formulas for new hires would eliminate the competition between local governments that have increased pension benefits.
“I think this is one of the major mistakes we made with the PERS system,” said Stenbakken. “STRS, the State Teachers Retirement System, doesn’t have this problem. If you’re a teacher in Eureka or you’re a teacher in Los Angeles Unified, you get the same pension.”
But the end of the Mendel article also illustrates the pitfalls likely to occur along the way. Two of the most powerful public employee unions are quoted as either disagreeing with the nature of the problem or arguing that the problem is not one of sustainability.
“I actually think it is sustainable,” said Terry Brennand of the Service Employees International Union. He said the basic problem is investment losses, not high benefit levels.
“What is sustainable?“ said Lou Paulson of the California Professional Firefighters. He said proposals to extend the retirement age for firefighters from 50 to 55 would result in more injuries with advancing age, driving up workers’ compensation costs.
In general labor union officials worried that statewide pension reform legislation might bypass local collective bargaining. I think that labor needs to figure out a way to make this work. Because it is only a matter of time before labor ends up on the wrong side of one of these reform legislations that is far too draconian for the tastes of people like me who believe that there is a real problem but do not want to see the entire pension system crumble under its own weight.
If labor union officials worry that legislation might bypass local collective bargaining, then they might want to fix the local collective bargaining so that it begins to address the longer term issues of sustainability.
I disagree with Mr. Brennand who is conflating the shorter term problem of the economy and poor investments with the longer term issue of sustainability. The problem of sustainability existed well before the economy collapsed along with the PERS investment portfolio. All this has done is bring the problem to the fore much sooner than it would have. Just look at the rate that pension costs have increased and it becomes obvious that this has been a ticking bomb.
The problem is that when you watch the Davis City Council talks it seems that the majority on council do not acknowledge this pending crisis. They speak in terms of the $3.5 million current year shortfall. There is no doubt that if that were the only problem faced by the city of Davis, we would have long solved it and moved on. The problem is that what we face is far more insidious and if we allow it to continue, it will sap and ever-increasing amount of our resources from the general fund.
And this conversation does not even touch upon what is right now the even larger unfunded liability, that of employee retirement health plans. For those who worry about the costs of a potential public option for health care, perhaps you ought to worry about the costs if cities and other local government agencies have to continue to pay for health care out of pocket.
For all of the talk about land use and development projects, this is the top issue facing Davis and not nearly enough people are really aware of the magnitude of the problem.
—David M. Greenwald reporting
This is the one of the most important issue facing the city, along with the unsustainably high costs of the surface water/wastewater/groundwater upgrades as currently planned.
I have been warning about this for years in both open and closed session, to the press, etc. CALPERS has assumed an unsustainably high rate of return, and small deviations result in very large changes in payments required. To make things worse, during the bubble years, PERS did not save for the down years, but reduced employer/employee payment requirements.
Now PERS has a new trick up its sleeve designed to avoid owning up to short term problems by creating long-term problems. The “rate-smoothing” is a way to borrow from the already overtaxed future to pay for present problems.
My suggestion is to assume the real cost of the PERS payments now, as we design our budget. The real cost is that which would exist without the rate smoothing.
The current system will create a situation in which our PERS payments will be as high as 50% of salary for public safety in about 20 years, and 25% of salary for other workers. Imagine the cost of your water/sewer bill when the $400 million cost of capitol improvements is added to an appoximately 25% labor cost increase?
(Sorry, couldn’t reread this for grammar, spelling or sense because I’m late for a meeting, as usual.)
Sue: You warned us all several years ago, unfortunately your colleagues did not heed your warnings. I will add this, you suggest it’s a trick called rate smoothing, I think it’s more like a roll of the dice, they are gambling that they can recoup the money through future earnings over a 30 year period, playing against that is the pressure of 3% at 30 and increasing amounts that we owe through salary increases (which have also been unsustainable and play a part in all of this).
So, lets file for bankruptcy while we can. The City can’t meet its obligations and is insolvent.
If the City does not stop throwing away the .5% sales tax increase into unsustainable employee high end salaries and pensions, the City Council can forget about a successful renewal of that increase. Go back and look at the staff reports used to gain CC and public approval of that increase a few years ago: staff reports did not disclose how it REALLY was going to be used: to pay for sky high benefits and astronomical pay packages. I have never opposed a tax increase during my many years in this city, but since the 3/2 CC majority lacks the political will to deal with the problem, I think the voters will.
“So, lets file for bankruptcy while we can. The City can’t meet its obligations and is insolvent.”
I don’t think that’s accurate, but I do think we need to be proactive to prevent that from occurring down the line. Looking at the projections, unless the economy continues to tank for the next decade, we can probably pull out of this mess in the next decade and avoid that pitfall.
David,
I think the odds of PERS “pulling out” in during the next two decades is small, unless we have massive inflation, which will dramatically decrease the incomes of our retirees, whose income is inflation adjusted by only 2% a year.
The current PERS estimates and payment schedule which will lead to the 25% to 50% increases in contribution rate 20 years from now are an average of the greatest bubble years along with the recent declines. So the estimates represent a new, lower baseline that will be difficult to recover from.
Another way of putting this is that most people probably conceptualize the current estimates as estimates based on a continuation of the current abysmal economic conditions. This is not the case. The current estimates would assume future business cycle highs and lows, starting from a new base which includes recent lows, as well as recent highs.
When the PERS chief actuary says you are reading for disaster, it should make you stop and think. Chief actuaries don’t routinely speak out publicly against their employer’s policies.
As I explained a number of years ago, the basic PERS assumptions were unrealistically high. They reflected U.S. rates of return during the historical era when the U.S. was the global growth superpower, and the dollar was the unchallenged reserve currency. The PERS rate of return assumptions were higher than global rates of return. Along with unrealistically high rate of return assumptions, PERS did not save for the down cycle, but allowed participating agencies to contribute less.
The 20 year time frame of the “rate-smoothing” technique is very dangerous. It means that, while we really should be paying 4 to 20 percent more, or perhaps averaging the increase in over 2 or 3 years hoping for a partial recovery, we are only paying .5 to 2 percent more. If PERS and the city again kick the can down the road through this 20 year “rate-smoothing” technique, we will be facing a fiscal train wreck in about 20 years, at the same time that our unfunded retiree health liability obligations will come due, and at the same time that we will be paying the full cost of our $400 million dollar water/waste water projects.
Our city budget is assuming the artificially low PERS “rate-smoothed” rates. This is the budget we are using during our labor negotiations. I fear for the future.
Sue: Maybe my “roll of the dice” analogy was too optimistic, perhaps I meant they are trying to draw an inside straight.
“Our city budget is assuming the artificially low PERS “rate-smoothed” rates. This is the budget we are using during our labor negotiations. I fear for the future.”
This is one of my big problems with the projections, we are basically building into unfunded liabilities unless PERS rate smoothing efforts are successful.
The city can’t pay it’s way, the council (or at least a majority of the council) won’t admit we have a pending financial crisis, yet the city continues to spend money on worthy but not vital programs. (E.g., the city will pay for the mailing of invitations to everyone in your neighborhood if you host a neighborhood night out party in October. Neat, but is this a necessity?)
I dearly wish our concilmembers would get their heads out of the sand. This will come back to haunt them. Good luck with that run for the county board of supervisors . . .
A modest proposal to solve the problems at CalPERS:
Cut the salary of the new CIO of Calpers, Joseph Dear. Despite the keen oversight of the state legislature, Dear’s base salary will be $425,000. That may be less than Karl Dorrell is paid not to coach the UCLA Bruins, but it’s still a lot of money. In the words of some, there is absolutely no justification for these bloated salaries. Especially since CalPERS is so many billions of dollars in the red, paying the CIO a $425,000 even if he does a bad job is a slap in the face to taxpayers who are suffering mightily, and to state workers who are terrified of losing their pensions. A salary like that breeds a fat cat mentality. With no connection to the common man, it’s no wonder that Dear wants to gamble with CalPERS like a high roller. So-called “rate smoothing” is a gimmick from a smooth operator, from someone who doesn’t expect to worry about his own pension.
Once the fat cats at CalPERS are cut down to size, then Davis can begin to think about what to do with CalPERS. As long their salaries are bloated, Davis shouldn’t contribute any money to CalPERS at all, to protest its monumental arrogance, its AIG mentality. Also the CalPERS board should be subject to recall by ballot initiative.
Greg, your proposal gets the nature of the problem all wrong. The problem in the City of Davis is not really with PERS. The problem is with the size of the pension and retiree medical packages we as a city have promised all employees. Even if PERS’s portfolio had not collapsed with the rest of the market over the last year and a half, and even if PERS could possibly have earned a yield of 7.75% per year, which is far beyond what the long-term average return of the S&P 500 is (and there is absolutely no reason to think PERS could beat the S&P), the City of Davis still would have been in terrible fiscal trouble down the road. There simply is not the tax base in Davis to afford giving every employee a retirement package — including employees who worked for the City for only a short while prior to retirement — which in Net Present Value terms is worth somewhere between $2 million (on the low end) and $4 million for all management and firefighters and cops. It is the huge value of these retirement deals — which of course go to very, very young retirees — which must be changed in the now long overdue contracts. While someone above said we should declare bankruptcy — we can’t, and that is (in legal bills) expensive if it ever comes to that — we can declare an impasse in our labor negotiations (pretty soon, I would think) and then impose a reasonable adjustment to all of our many out-of-date labor contracts in order to start to fix the problem.
Rich: I think Greg was having a little fun with the connection between the UC’s and Cal PERS.
An interesting side note: among Senator Leland Yee’s proposals regarding the university is legislation that called for unions to have a role in pension governance. [url]http://www.californiaprogressreport.com/2007/05/university_of_c.html[/url]
[i]An interesting side note: among Senator Leland Yee’s proposals regarding the university is legislation that called for unions to have a role in pension governance.[/i]
It seems like Yee’s entire political career is a big union push. Not long after Yee was elected, he decided that government buildings should be designed with “feng shui”. Amazingly enough, Willie Pelote endorsed “feng shui”. I doubt that either Pelote or his union really care about feng shui. It has also been said that feng shui in the hands of architects is often a scam to increase consultancy fees. It suggests that Yee and the unions are in lockstep.
[url]http://www.boston.com/news/nation/articles/2004/02/09/plan_touts_foundations_of_feng_shui_in_calif/[/url]
It also sounds like Yee never lets UC out of his cross-hairs.
Anyway, if this joint governance idea is important for UC, why not for the city of Davis too? Instead of the city council arguing pensions with the city manager, we could have a pension board controlled jointly by union and city trustees. Rich or David or Sue might think that the city is getting bled dry by pensions, but they would have to clear that with the pension board.
Cutting Joseph Dear’s compensation should come first though, because there is absolutely no justification for such bloated salaries. I know that it would only be a symbolic step, but where is the shared sacrifice? Maybe voter recall of the CalPERS board would be a drastic step, but they defy the will of the people at their peril.
On a more serious note, David, your chart of Davis PERS contributions isn’t adjusted for the population of Davis. It looks like it isn’t adjusted for inflation either. I don’t know if that’s deliberately tendentious or accidentally tendentious, but in any case I would have learned a lot more from an adjusted chart. In fact it might be best to simply divide by total city revenue, which would adjust for the city’s prosperity as well as inflation and population.
Greg,
Expenditures have been outstripping revenue by quite a bit. We also have a huge unfunded retiree health liability, which comes due in about 15 years. PERS has acknowledged that we need a huge increase in PERS rate as a percentage of salary. Inflation doesn’t factor into these problems.
[i]Expenditures have been outstripping revenue by quite a bit.[/i]
I don’t doubt you, but it’s not reasonable to make one ratio in words and a different one in a chart. That is, just because you’re right, that isn’t license to exaggerate. PERS contributions divided by city revenue is the correct ratio and it is what the chart should show.
I’d hate to get on the wrong side of your talented pen, Greg, but it wasn’t my chart, and I am not defending it. I am just trying to get back to the main theme.
All right, to be more specific: Clearly the CalPERS expense fell by a lot from 1990 to 2001, and then rose by a lot since then. But if you computed this as a fraction of the city budget, would it be a camel with two humps, or would it be a foothill followed by a mountain?
To the extent that it would be a camel with two humps, then it does not necessarily mean that the PERS obligation is unprecedented and spiraling out of control. It could only mean that an 8-year period of wonderful investments was too good to be true.
Of course the chart is a foothill followed by a mountain. But that’s because David charted the total dollar amount, not divided by anything.
Greg: I thought I had data that showed very little growth in number of city employees, but this is a year old but at least shows you revenue, benefits, and salaries from 2000 to 2008.
[img]/images/stories/Employee_Salaries_and_Taxes.jpg; height=”207″ width=”600″[/img]
Greg: I thought I had data that showed very little growth in number of city employees, but this is a year old but at least shows you revenue, benefits, and salaries from 2000 to 2008.
[img]/images/stories/salary-taxes-etc.jpg[/img]
Greg: I thought I had data that showed very little growth in number of city employees, but this is a year old but at least shows you revenue, benefits, and salaries from 2000 to 2008.
[img]/images/stories/salary-taxes-etc.jpg[/img]
But this table is only half of the story. Your chart begins in 1990, but the table begins in 2000. This is only one hump of the camel. My question was how big this hump is compared to the other one.
Everyone knows that the stock market was a big party from the mid 1990s to the mid 2000s. The party had a hiatus in 2001, but then it charged forward again. It led CalPERS, UC benefits, and many other pension plans to do some wishful things. That’s why it would be useful to look at these ratios before the party started, for instance in 1990.
Greg, I believe it works something like this:
Theoretically, CALPERS bases its contribution rate on a prediction of what it will take to fully fund retirements. This rate is based on current assets and assumes a certain rate of return. If the assets change because the investments lose money or CALPERS fails to collect enough in contributions, a new baseline is eventually established. Again, CALPERS lowered the amount of money it collected when the market did well. (Similar to the reason that you have not had to pay the employee share into your university retirement account for many years). So when the bubble burst, there was no cushion, and the assets crossed the threshold that required CALPERS to admit that rates had to be substantially increased. However, that was hard to do politically, so CALPERS instituted a 20 year averaging system. A certain amount of flexibility is built into the PERS rates to take into account the fact that there are good years and bad years, but PERS has greatly exceeded the limits of that flexibility.
So…it might be intellectually interesting to retrace the work of the CALPERS actuaries, but I am satisfied with their assessment that, even assuming a reasonable range of rate of return to account for boom and bust periods, we are unfortunately still way below the range from which we can reasonably expect to recover without significantly increasing our contribution rate.
Although each participating agency and have a slightly different situation, the deviations will not be great. To be in conformance with reasonable accounting standards, we should be contributing between 4 to 20 percent of salary more then we are paying. However, we will only be billed between .5 and 2 percent more. The rest is an unfunded liability, which will be growing at a hefty compounded rate.
Sue, there are two related but different claims here. One claim is that the PERS contribution is skyrocketing and unprecedented. There could be some truth to this, but certainly as displayed in the chart it’s an exaggeration. The stock market party that began around 1995 is over, and it doesn’t feel good to live off the hangover. But if you adjust for the size of the city budget, the PERS contribution might not be all that much bigger in 2010 than it was in 1990.
The other claim is that the current PERS contribution isn’t the whole story because there are unfunded liabilities. It’s easy to associate “things are expensive” with “there are hidden costs”, but they’re not the same. I do not like it when people lump all warnings together into The Big Warning. Anyway, Ron Seeling says that there are unfunded liabilities and he could be right. I don’t know, and no, I don’t want to redo his calculation.
Either way, you can’t wish away employment competition with other cities simply by declaring a crisis. The competition is real, not just within California but across the United States. For instance I’m not sure why you let go of Jim Antonen, maybe that was a great idea, but he was snapped up by a similar city in Minnesota.
Realistically, there isn’t going to be enough affordable housing in Davis any time soon. Again, there is a market rate, and the electorate would be furious if our houses generally became affordable. The value of your house and my house aren’t really secret; they’re in Zillow.com. Surely either of us would wince at losing half of our valuation. Barring that outcome, Davis will remain at a competitive disadvantage in the city worker job market. It will have to pay a little more than other area cities have to pay. I suspect that you couldn’t reduce compensation by declaring a crisis even if the city council were unanimous. I suspect that the cuts would slip back and create ill will for nothing.
But if it is true that CalPERS has unfunded liabilities, you could shift to a more trustworthy compensation formula. You could argue to city staff that CalPERS is less than it promises to be, and that they are better off with other benefits that are more solid. If they believe that, then maybe the city could get more bang for the buck from its workers.
Either way, you can’t wish away employment competition with other cities simply by declaring a crisis. The competition is real, not just within California but across the United States. For instance I’m not sure why you let go of Jim Antonen, maybe that was a great idea, but he was snapped up by a similar city in Minnesota.
I would contend that paying more does not necessarily equate to getting better. Look at former Police Chief Jim Hyde or former Supt. David Murphy. A “keeping up with the Jones” mentality is what is going to ruin this city financially. We will have to agree to disagree on this issue.
Hi Greg,
Concerning your observation: “But if you adjust for the size of the city budget, the PERS contribution might not be all that much bigger in 2010 than it was in 1990. — I don’t quite understand what you are trying to get at.
The PERS rate increases that we are talking about are on a per employee basis, so I don’t understand what you mean by “adjust for the size of the city budget.” Most of our O&M budget expenditures are employee compensation, and the PERS increases of about 4 to 20 percent, whether they be paid now or deferred, refer to 4 to 20 percent of each employee’s salary.
Maybe I am missing something, but I don’t quite understand how adjusting for the size of the city budget would have a significant effect on the PERS contribution.
Concerning your observation that Davis has to fear being at a competitive disadvantage with other cities:
Of course we value our existing employees, and we believe in providing job security and decent compensation. That said, many of our city jobs are well-suited to people with a wide range of education and experience. We have a huge pool of extraordinarily smart and talented people in Davis who are underemployed, and would be more than happy to take these jobs if they become available. Other jobs, such as firefighter, have traditionally had a glut of applicants. There jobs, such as those in the finance department, that require specialized training and skills, and filling these jobs could be more difficult. But there are many ways to raise the compensation of irreplaceable individuals and specific positions when needed.
Remember, we can’t really compete effectively for the talent that is in short demand on the basis of salary anyway. There are always higher-paid jobs in larger cities and the private sector for the best and brightest. We recruit and retain employees for a large variety of reasons. Some like the area, some like working for progressive city, some have a spouse at the University, etc.
Point of information: It was a number of years between the time that Mr. Antonin left the city and the time he chose to take a position in Minnesota.
Greg: On housing prices and city job recruitment
I think that there are a lot of reasons why one would want people to be able to live and work in the same town. That said, I don’t believe that uncompetitive housing prices present a major recruitment challenge to the City of Davis compared with other California cities. There might be some potential employees who would prefer to work in Marysville because housing is cheaper there, but many others would prefer to work in a University town, even if it means commuting 10 minutes from Dixon or Woodland.
From a purely recruitment point of view, leaving other values aside, I think that high housing prices can create a problem if the potential employees would have to commute over 45 minutes or more each way to find affordable housing, as they do in the more expensive coastal areas. But, compared to the expensive coastal areas, affordable housing in safe, pleasant communities is available within 10 minutes of Davis.
When my husband got his first job as an assistant professor at Harvard, it was understood that we could not afford to buy a house in Cambridge. No one questioned this; no one complained. In fact, we rented an apartment in Watertown, a working class suburb that was about 15 minutes from Cambridge. It was a lovely community and we enjoyed living there. When we were ready to buy, we searched for a two-family unit in Watertown. Harvard University has been able to recruit good faculty and staff, although virtually no one can afford to live there.
Personally, I have chosen to live in a neighborhood with a diversity of income groups. I am not personally a fan of upscale bedroom communities or exclusively upscale neighborhoods. But I don’t think that our housing prices has put as at a disadvantage compared to other California cities when it comes to recruiting city employees.
[i]The PERS rate increases that we are talking about are on a per employee basis, so I don’t understand what you mean by “adjust for the size of the city budget.”[/i]
My comment pertains to David’s chart of total PERS contributions rather than to the later discussion of per employee percentages. You’re right that the percentages are already scaled properly. However, David’s discussion of the percentages is in paragraph form and it meanders through various numbers. It’s not organized into a chart or a table, so it’s hard to get a complete picture from it.
It sounds qualitatively true that PERS contributions will be a big expense for the city for years to come. But are they a “ticking time bomb” as the title says? I don’t want to accuse David of being short of data; it looks like he has a lot of data. However, the presentation has been confusing.
I agree that whether the compensation is adequate really comes down to whether you have enough qualified applicants when you have openings. The firefighters seem to be everyone’s favorite example on this site. It sounds like they have done very well for their interests in collective bargaining. One commenter said that the police recruitment has been the opposite of firefighter recruitment, that not very many people applied at all.
I also agree that you can’t compete for talent purely or even necessarily mainly on the basis of compensation. But still, compensation matters. It would be foolish to push compensation to the breaking point by declaring a crisis. Sometimes you have no choice but to cut services instead.
You have a point that it was a few years between Antonen’s service in Davis and his appointment in Maplewood, Minnesota. He was not necessarily in hot demand — he apparently also interviewed for city manager of Boulder. Still, there is a message in it if even people who left Davis on negative terms are hired as leaders elsewhere. Jim Hyde is another example. I don’t necessarily miss either Hyde or Antonen; I don’t know all that much about them. But just in general, it’s easy to mess things up with unrealistic expectations of great work without great pay.
Final segment of response to Greg’s post:
(I don’t mean to pick on your post, Greg. It just provides me a good excuse to discuss some of the issues).
It is true that we can’t just declare a reduction in compensation the way the University and state have done with most of their employees. But we also are not subject to collective bargaining. We have to negotiate in good faith and go through a prescribed process if we don’t come to an agreement, but we do ultimately have the right to set salaries if all else fails. No one likes to have their salary reduced. My own family income has been reduced by 10% by the University, and we face an additional 2 to 6 percent decrease this April when the University (euphemistically) “considers” reinstituting employee contributions to PERS. We don’t like it either, and of course we hope the economy recovers and that our income will recover, but we understand the position that the University is in.
Concerning shifting “to a more trustworthy compensation formula”, you have brought up on interesting point and one that I have been pounding away at for years.
I have always argued against lowering the age of full retirement benefits for non-public safety employees to 55, on the grounds that it very expensive and that it is permanent. The cost of lowering the retirement age of non-public safety to 55 is close to 4% of salary per year. And it is permanent. It can’t be changed for current employees unless every employee in the bargaining group agrees. How likely is that? There will always be a few people who are close to retirement who would not vote to give up their benefit. Unfortunately, we will likely be paying for this benefit until the youngest employees at the City today die at age 85 to 95, assuming no major medical breakthroughs.
[quote]I have always argued against lowering the age of full retirement benefits for non-public safety employees to 55, on the grounds that it very expensive and that it is permanent. The cost of lowering the retirement age of non-public safety to 55 is close to 4% of salary per year.[/quote]
Not likely… the retirement formula was changed from 2%@60 to 2%@55 in the mid 1980’s. Not positive whether Ms. Greenwald was even a resident then. The change in formula was done in lieu of market/cost-of-living adjustments in that bargaining cycle.
What is true is that Ms. Greenwald opposed going from a 2%@55 to a 2.5%@55 formula a couple of years ago. The employees in management, for example, had to forgo 1 year of market/COLA adjustments and an additional 1% “premium” to obtain the improved benefit. In effect, the City has charged the employees for the increased cost for the increased benefit.
[quote]And it is permanent. It can’t be changed for current employees unless every employee in the bargaining group agrees. How likely is that? There will always be a few people who are close to retirement who would not vote to give up their benefit.[/quote]
Again, not necessarily true. Bargaining units need only have a 50% +1 requirement to alter their terms. Not sure what the rules are for individuals, under the PERS rules, if their unit votes for a lesser retirement formula, but at least moving forward, a unanimous vote would not be necessary. Future employees would be subject to the new terms.
[quote]Unfortunately, we will likely be paying for this benefit until the youngest employees at the City today die at age 85 to 95, assuming no major medical breakthroughs.[/quote]
No, “wrong again”. On the retirement pension side, once an employee retires, the City’s payments cease. The actuarials are in the PERS contribution formula. The City pays no difference for a given employee whether they die the day after retirement or 50 years later.
Wish people would use facts to bolster their arguments. But, perhaps that would be too boring.
And you David , try to give Dunning a lesson about printing the truth , shame
On you .
“No, “wrong again”. On the retirement pension side, once an employee retires, the City’s payments cease. The actuarials are in the PERS contribution formula. The City pays no difference for a given employee whether they die the day after retirement or 50 years later.”
I don’t understand this. Please explain.
“Again, not necessarily true. Bargaining units need only have a 50% +1 requirement to alter their terms. Not sure what the rules are for individuals, under the PERS rules, if their unit votes for a lesser retirement formula, but at least moving forward, a unanimous vote would not be necessary. Future employees would be subject to the new terms.”
But current employees would have to agree 100% to change their pensions, right?
To For the Record”
Full benefits were reached at age 64, and were a shade under 2.5% of highest year’s salary for every year worked. Now 2.5% is reached at 55. Hence, full benefits were lowered to 55.
Again, according to our city attorney, every person represented by a bargaining group would have to agree to change the 2.5% at 55 provision.