Spiking Public Pensions in California

Matt Welch | July 30, 2009

From the Capitol Weekly:

The San Ramon fire chief, Craig Bowen, had a final salary of about $221,000, but he retired last December at age 51 with an annual pension of $284,000.

The Moraga Orinda fire chief, Peter Nowicki, had a final salary of $185,000, but he retired in January at age 50 with an annual pension of $241,000. [...]

Public employee pensions are often based on the highest annual total pay received on the job. A variety of ways can be used to "spike" pay shortly before retirement, thus boosting lifelong pensions that increase annually with inflation.

Whole thorough story here. Related: Here's a list of 286 $100,000 pensions in the City of Los Angeles' police and fire divisions alone.

And remember: These pension funds not only bust budgets in 2009 (what with California spending more than 22 times the amount on pensions this year than it did less than a decade ago in nominal terms), but the obligations going forward make state budgeting an exercise in fantasia and/or entire Red Seas of deficit. There will never be enough money to pay that out. And as Jon Entine reminds us in his February cover story, those massive funds themselves have been losing money hand over fist due to unwise and politically motivated investments.

Well, at least the new head of California's pension fund is an experienced investment hand who wants to take the gambling out of the pension-obligation business! Oh wait:

Joseph A. Dear....is not an investment seer by training, but he thinks he has the cure for what ails Calpers, or the California Public Employees' Retirement System, the largest in the nation with $180 billion in assets.

Mr. Dear wants to embrace some potentially high-risk investments in hopes of higher returns. He aims to pour billions more into beaten-down private equity and hedge funds. Junk bonds and California real estate also ride high on his list. And then there are timber, commodities and infrastructure.

That's right, he wants to load up on many of the very assets that have been responsible for the fund's recent plunge. Calpers's real estate portfolio has tumbled 35 percent, and its private equity holdings are down 31 percent. [...]

He was hired in large part for his management skills and political savvy — honed in Washington, where headed the Occupational Safety and Health Administration in the Clinton years. He does not have an M.B.A. or any other advanced degree in finance. Harvard, Yale or Wharton is not on his résumé. Instead, his lone degree, in political economy, is from Evergreen State College in Olympia, Wash.

Comments

Untermensch|7.30.09 @ 9:45AM|#

… fantasia and/or entire Red Seas of deficit

Do your mean Dead Seas? The Dead Sea is below sea level. If the reference is to the Red Sea, I don't quite get it.

Spoonman|7.30.09 @ 9:47AM|#

Red ink, Untermensch.

|7.30.09 @ 9:56AM|#

Sweet Jumping Jesus, California's new pension tard is the guy who used to run OSHA?

What could possibly go wrong?

kilroy|7.30.09 @ 9:59AM|#

"He does not have an M.B.A. or any other advanced degree in finance. Harvard, Yale or Wharton is not on his résumé. Instead, his lone degree, in political economy, is from Evergreen State College in Olympia, Wash.

What the fuck does that have to do with anything? If he had all those things and made the same decisions they would somehow be better decisions? WTF?

Are you drinking the Kool-aid now Welch?

|7.30.09 @ 10:01AM|#

Bill Simmons writes sports collumns for ESPN. He wrote one recently about his dad retiring. His dad is a school administrator somewhere in Massachusetts. His dad retired after 30 years with 80% pay. Fucking 80% pay. Simmons being a nitwit leftist (sportwriters are suprisingly lefty) just mentioned it off hand. The significance of it never dawned on him.

To put that in perspective. The federal civilian retirement system is very generous. But even under the old system 30 years would have only got you 60%. Under the post 1985 system it gets you 30%. The military retirement system 30 years will get you 60%. But you can be fucking do nothing school administrator in some hick town in Massachusetts and get 80%. The public employees' unions have looted the entire country like a band Tarters raping a medieval village.

Art-P.O.G.|7.30.09 @ 10:04AM|#

I don't know why someone would need a six-figure pension, but then the cost-of-living is notoriously high in Cali.

Hugh Akston|7.30.09 @ 10:07AM|#

Instead, his lone degree, in political economy, is from Evergreen State College in Olympia, Wash.

You have a degree in baloney.

Jordan|7.30.09 @ 10:07AM|#

I guess this is the Two Americas John Edwards wouldn't shut the hell up about. Gold plated Mercedes for public employees, tiny American flags for everyone else!

|7.30.09 @ 10:08AM|#

"He does not have an M.B.A. or any other advanced degree in finance. Harvard, Yale or Wharton is not on his résumé. Instead, his lone degree, in political economy, is from Evergreen State College in Olympia, Wash."

Considering that Harvard and Wharton MBAs with bright ideas rant he world economy off a cliff last year, I don't see how this is a problem. Why there is such a thing as an MBA program that isn't a trailor in the back lot of community college training people how to balance the books at a 7-11 is beyond me.

Xeones|7.30.09 @ 10:10AM|#

John, that's awfully cruel to Tartars, comparing them to a public employees union.

Mike M.|7.30.09 @ 10:16AM|#

I honestly don't think most American subjects, I mean citizens, have any clue whatsoever just how much their "public servants" are making, because if they did, there would be pitchforks and torches on the march.

|7.30.09 @ 10:17AM|#

The San Ramon fire chief, Craig Bowen, had a final salary of about $221,000, but he retired last December at age 51 with an annual pension of $284,000.

The Moraga Orinda fire chief, Peter Nowicki, had a final salary of $185,000, but he retired in January at age 50 with an annual pension of $241,000. [...]

US MILITARY BASIC PAY-EFFECTIVE JANUARY 1, 2009

O-10 with 30 years = $16,382.10/month, $196,585.20/year.

Multiply by 0.75 for retirement pay based on 30 years service = $147,435.90/year.

Retired San Ramon fire chief Craig Bowen recieves 1.93 times what a four star general or Admiral does. Retired Moraga Orinda fire chief Peter Nowicki receives 1.63 times as much.

Maybe flag officers the entire military should join the AFSCME.

|7.30.09 @ 10:24AM|#

Union work rules have been so successful in industry, why shouldn't we apply them to the military?

Kolohe|7.30.09 @ 10:25AM|#

The military retirement system 30 years will get you 60%.

It's more like 75% but in most cases high year tenure will kick you out before then. (and now they started a program to look at all e-7's to e-9's over 20 and kick out any 'deadweight' - with the appropriate retirement benefit)

Art-P.O.G.|7.30.09 @ 10:25AM|#

Retired San Ramon fire chief Craig Bowen recieves 1.93 times what a four star general or Admiral does.

!!!!nice

|7.30.09 @ 10:27AM|#

Uh John, a lawyer that can't spell his way out of a paper bag shouldn't be throwing stones. Especially when you consider lawyers do wonderful things for humanity, like authorize torture.

|7.30.09 @ 10:28AM|#

I will do you one better J sub D.

US MILITARY BASIC PAY-EFFECTIVE JANUARY 1 2009

E-9 with over 30 years = $6,224.70, $74696/year

Multiply by .075 pay based on 30 years service = $56222.

Retired San ramon fire chief Craig Bowen recieves 5 times the retired pay that a 30 year retired SGM recieves. To anyone who has been in the military and knows what it means to be a SGM, that is just astounding.

Citizen Nothing|7.30.09 @ 10:29AM|#

My dad, a cop, (now don't go psychoanalyzing me) retired 20 years ago at age 49 after 25 years on the force with a sweet, sweet pension. He's having a great time.
His father just died at age 91 and was the oldest General Motors retiree in the entire city.
My company permanently froze our pensions last year. Last month they cut back on 401K contributions, too.

|7.30.09 @ 10:32AM|#

"Uh John, a lawyer that can't spell his way out of a paper bag shouldn't be throwing stones. Especially when you consider lawyers do wonderful things for humanity, like authorize torture."

Yes because water boarding KSM (which of course was all the lawyers fault, not the people who you know actually did it) is the same as destroying huge investment banks, causing a recession and getting your buddies in Congress to bail you out. I am quite sure the spelling on the CDS agreements, which no one could understand or value, was perfect.

Certainly lawyers are responsible for a lot of sins in the world, the least being authorizing torture, the most being our tort system. But MBAs and the movement away from hiring people who can do anything but count beans has done much more damage to this country.

Untermensch|7.30.09 @ 10:42AM|#

Red ink, Untermensch

Thank you. It's always the obvious ones that get me...

Stretchy|7.30.09 @ 10:42AM|#

I'm not sure what Harvard, Yale or Wharton have to do with anything. I'm in the software industry and some of the biggest dullards I've worked with have been from MIT, Duke and Michigan. Some of the brightest have been from Northwest Missouri State. Yes, that NWMSU. Where you went is less important than what you can do.

|7.30.09 @ 10:46AM|#

Where you went is less important than what you can do.

And we all know who Exhibit A is for that.

Seriously, though, this guy's main qualification apparently is that he ran OSHA for Clinton. How that gives anyone any clue at all into how to manage a massive asset pool is beyond me.

Kalle (kafir forever)|7.30.09 @ 10:50AM|#

ok, that does it. I'm leaving California.

Art-P.O.G.|7.30.09 @ 10:51AM|#

I'm in the software industry and some of the biggest dullards I've worked with have been from...and Michigan.

Heh heh heh [Full Disclosure: I'm a huge Buckeye fan]

Rich|7.30.09 @ 10:53AM|#

This'll give a whole new meaning to "Dear me!"

robc|7.30.09 @ 10:53AM|#

sportwriters are suprisingly lefty

most went to j-school. What is surprising about it?

|7.30.09 @ 10:57AM|#

Mr. Dear wants to embrace some potentially high-risk investments in hopes of higher returns. He aims to pour billions more into beaten-down private equity and hedge funds. Junk bonds and California real estate also ride high on his list. And then there are timber, commodities and infrastructure.

Vegas loves suckers like that.

Citizen Nothing|7.30.09 @ 10:59AM|#

"[Full Disclosure: I'm a huge Buckeye fan]"
I knew I liked the cut of your jib, Art-P.

Citizen Nothing|7.30.09 @ 11:00AM|#

Are you saying they teach leftism in j-school, robc? I think saying they teach ANYTHING is giving them too much credit.

Matt Welch|7.30.09 @ 11:01AM|#

Are you drinking the Kool-aid now Welch?

I 100% agree that the Harvard/Wharton sentence is one giant WTF. I left it in there because I *was* interested in the degree in political economy (not the university, but the subject), and I was too lazy to Dowdify the sentence.

Ska|7.30.09 @ 11:03AM|#

How that gives anyone any clue at all into how to manage a massive asset pool is beyond me.

Which is demonstrated well by investing pension funds in junk bonds.

Citizen Nothing|7.30.09 @ 11:05AM|#

Wait. Why shouldn't we suspect that someone with an M.B.A. or an advanced degree in finance would know more about business or finance?

|7.30.09 @ 11:06AM|#

I think California should place its pension funds on red 19 and take a spin. If it wins, it gets Nevada. If it loses, the state gets stuck with the pensions and has to secede.

robc|7.30.09 @ 11:08AM|#

CN,

I think they try. Succeed? Probably not.

|7.30.09 @ 11:12AM|#

RC, who is exhibit A? GHWB? Clinton? GWB? Obama? Help me out. I can't decide.

Does Bill Gates even own a non-honorary degree?

|7.30.09 @ 11:27AM|#

Retired San Ramon fire chief Craig Bowen recieves 1.93 times what a four star general or Admiral does. Retired Moraga Orinda fire chief Peter Nowicki receives 1.63 times as much.

Of course, they can't make 20k a pop bloviating on Fox.

I curse the day I chose to leave the fire service for private consulting. I make decent money but only have a 401201k and a shitty cash balance plan and will work far more than 30 years.

My choice notwithstanding - and I know some of these folks, the CalPERS system is rape of the taxpayer. The players will deny it, but they know in their hearts it's true.

T|7.30.09 @ 11:34AM|#

Why shouldn't we suspect that someone with an M.B.A. or an advanced degree in finance would know more about business or finance?

I would hope my MBA gives me a bit more insight into making money than running OSHA. Of course, in this case, common sense might kick in well before any of the B-school book learnin'. Pouring more money into the investments that bankrupted you is dumb even if you don't have a business degree.

Plus, if you're going to hire a guy to run the largest pension fund in the country, maybe you look for somebody with experience in fund management with a solid track record. But that's just me.

|7.30.09 @ 11:34AM|#

Wait a fucking minute. When the government wants to claw back $165 million in bonuses from AIG executives, all I hear is about how this is an assault on the freedom to contract.

The State of California or its subdivisions contracted with these employees. You're fucking whining about $100,000 a year pension paid to a fire fighter in LA?

Where's your vaunted freedom to contract now?

kilroy|7.30.09 @ 11:36AM|#

"Wait. Why shouldn't we suspect that someone with an M.B.A. or an advanced degree in finance would know more about business or finance?"

Experience?

|7.30.09 @ 11:37AM|#

I think California should place its pension funds on red 19 and take a spin. If it wins, it gets Nevada. If it loses, the state gets stuck with the pensions and has to secede.

Forced secession, I like that, except that then it would be rediculously hard to get through the new border to go to the beach. *Sigh* I guess we still have Florida, however poor a substitute.

CALPERS doesn't need another government employee to run it, it needs Lee Raymond. He'd cut benefits by half, fire 3/4 of the bureaucrats and make it profitable in 5 years.

|7.30.09 @ 11:40AM|#

The work agreements between public sector unions and liberal state governments are not contracts. They exist merely as documentation of collusion.

|7.30.09 @ 11:56AM|#

CALPERS only pays about 500,000 per year, with a potential bonus of another $350K or so depending on fund performance. Therefore, they aren't going to steal somebody from Goldman Sachs, and have to settle for someone from the public sector.

Mr. Dear had a good run managing the Washington fund for the last six years, until last year, when his high-risk portfolio lost $18 billion out of a $65 billion fund. (Of course, losing 28% is much better perfomance than CALPERS, which lost well over 50% of its value).

|10.5.09 @ 12:15PM|#

J Mann, come on, you said 'CALPERS, which lost well over 50% of its value' you must get your information from dipshit U. J Mann, calpers has 200 Billion Dollars, today, that is 200 with a B, Billion. Calpers continues to ear on average 8-10 percent per year.

Maybe all you whiners should push for a state controlled "Private CalPERS". Us public employees will paronize your stores, restaurants, car lots, buy new homes,etc. while you guys get your fiscal house in order.

Sorry all your banking buddies went out on a limb and lost billion, which we all had to pay for. But thank goodness us public employee folks still have our steady low paychecks to pump some life into the economy that was nearly destroyed by greedy PRIVATE corporations. Us public employees bailed you our in the 1930' also.

|7.30.09 @ 11:57AM|#

"Wait. Why shouldn't we suspect that someone with an M.B.A. or an advanced degree in finance would know more about business or finance?"

Experience?

Unlike most other advanced degree holders, the vast majority of MBA holders have work experience prior to getting their advanced degrees.

|7.30.09 @ 12:02PM|#

I wonder if this guy will turn out to be Obama's "you're doing a heck of a job, Brownie" appointment.

|7.30.09 @ 12:05PM|#

You're doin' a heck of a job, Epi.

|7.30.09 @ 12:27PM|#

Oh, don't I know it. Where's my FEMA trailer to live in?

|7.30.09 @ 12:39PM|#

I wonder if this guy will turn out to be Obama's "you're doing a heck of a job, Brownie" appointment.

That would require actual publicity, and the MSM will cover for their Obamessiah.

|7.30.09 @ 1:35PM|#

Evergreen? HA-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha-ha ahhhhh . . . .HA-HA-HA-HA-HA-HA-HA-ha-ha-ha-ha-ha.

Oh man.

|7.30.09 @ 1:39PM|#

Ummm, guys, i don't think Obama has anything to do with appointing the head of California's pension system. Directing hate at the right targets always works best in my experience.

And how could "embrac[ing] some potentially high-risk investments in hopes of higher returns" posibly go wrong?

Oh wait, perhaps running a pension fund is not just about the highest return but, rather, striking a proper balance between maximizing returns while preserving capital.

|7.30.09 @ 1:51PM|#

"Oh wait, perhaps running a pension fund is not just about the highest return but, rather, striking a proper balance between maximizing returns while preserving capital."

But if we did that Isaac, we would have to tell current employees and union bosses that they can't have astronomical pay raises. Better to give the raises, invest the money in craps in Vegas and hope for the best. I mean the worst thing that could happen is that we stick future tax payers with the bill. And last I looked future tax payers don't give out campaign contributions, sweatheart do nothing post political jobs or vote.

|7.30.09 @ 2:09PM|#

Interesting that he ran OSHA nigh on a decade ago. Presumably he hasn't been unemployed for the past eight years?

Russ 2000|7.30.09 @ 2:11PM|#

Are you drinking the Kool-aid now Welch?

It's as if Tim Cavanaugh no longer blogs here anymore.

robc|7.30.09 @ 2:12PM|#

Where's your vaunted freedom to contract now?

Free contracts exist between two private entities. As soon as the government gets involved, it aint free.

Just like you cant exclude people based on race from a government owned facility, but you can from a private one. Wait...what?

|7.31.09 @ 8:39AM|#

Free contracts exist between two private entities. As soon as the government gets involved, it aint free.

Just like you cant exclude people based on race from a government owned facility, but you can from a private one. Wait...what?

Right. And AIG, by virtue of taking billions in government money, was no longer a private entity, so when the gov't wanted it to rescind contracts and take back the bonuses, what was the fucking problem?