Pension Crisis

California Pension Fund Mystified That Folks Are Upset About Budget-Busting Bonuses


That will be an extra $75 a month for flag-raising duties.
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In August, Victor Nava of the Reason Foundation highlighted what is ultimately the destruction of a significant feature of California Gov. Jerry Brown's modest public employee pension reforms. He sought to stop one source of pension spiking—the pursuit of temporary bonuses and extras in pay that ultimately permanently boost an employee's pension payout—by requiring pensions to be calculated from base pay, not including these bonuses.

No problem, said the California Public Employees' Retirement System (CalPERS). They'll just declare all sorts of bonuses to be part of their base pay and force them right back into the pension calculations. CalPERS voted to have 99 bonuses sometimes given to certain public employees for various tasks that most of us would classify as expected job duties (like officers directing traffic) as part of their base pay. And so California's multi-billion-dollar pension crisis gets worse.

Today the Los Angeles Times follows up on the fears raised by Nava to explore the potential financial impact of this vote. Note that CalPERS doesn't know the potential cost to taxpayers of the decision they made. They voted without any sort of estimate. So the Times took the city of Fountain Valley, an Orange County community with a population of around 55,000, and had CalPERS determine what the bonuses are going to cost:

CalPERS found the Fountain Valley perks could hike a worker's gross pay as much as 17%. About half the city's workforce received the extra pay that will also increase their pensions, most of them police and fire employees.

Fountain Valley taxpayers are spending between $147,000 and $179,000 in total compensation, pension and other benefits for each full-time officer on its force, according to city documents. Sergeants, lieutenants, two captains and the chief receive more.

CalPERS executives told the Times they didn't understand why people are so upset with them:

The action simply clarifies the 2012 reform law, which was designed to stem rising pension costs, said Brad Pacheco, a spokesman for the agency.

CalPERS always assumed that new employees would continue to benefit from bonuses just as those hired earlier did, Pacheco said.

"We just changed the definition of 'base pay' to include things that are obviously not base pay. Why is everybody so upset with us?"

When it comes to salary negotiations though, you better believe all those bonuses (and the fact that they permanently boost pensions) will not be part of the numbers tossed out so that employee representatives can make wages appear more modest.

The Times notes that pension contributions from the state and municipal governments within California have jumped from $1.9 billion to $8.1 billion in 10 years. That's not even getting into the massive problem of growing health care costs for government employees.

Nava noted some of the justifications for bonus pay in his August story, but the Times has a longer list here.

Below, Reason Foundation Vice President of Policy Adrian Moore discusses how to end the public sector pension crisis: