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Libertarian activist Richard Rider says that most city workers retiring with 30 years of service are getting 120 percent of their final year’s pay. They get 75 percent through their normal pension program. In addition, they have a supplemental pension savings plan. The City matches their annual contribution, which is between 3.05 and 6.1 percent of their pay. An employee who puts in 6 percent a year, gets the match, and makes 8 percent annually on the growing pot can easily retire at 140 percent of his or her final year’s salary, says Rider. And that’s not considering DROP.

A city employee who has worked 35 years and is in both the DROP program and the supplemental pension savings plan may retire at age 60 with a $75,000 annual salary but will rake in $170,000 a year in retirement — 226 percent of his or her highest pay.

Are you ready for the recession and bear market? Your next-door neighbor who works for the City certainly is. That neighbor has been dealt a nice hand.

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Anon92107 Jan. 30, 2008 @ 12:37 p.m.

Donna Frye said it best when she was quoted in the July 2006 National Geographic cover story “America's Coasts, Land on the Edge, "Let me tell you, dirty water, dirty politics, it all comes from the same source." San Diego has the most corrupt politics of any city in America as a result of the Union-Tribune’s era of corruption that put Golding, Murphy (a former judge) and Sanders in office to produce more corruption than Cunningham could ever dream of doing. The latest three U-T puppet-mayors should be put in the same cell as Cunningham but it will never happen with the corrupt San Diego judicial system that has a track record for giving San Diego U-T puppet-mayors “Get Out Of Jail Free” cards even when they are convicted of corruption by two juries like Hedgecock was. San Diego has been betrayed by the Union-Tribune Editorial Board, and corruption shall not begin to end until the U-T is put out of business.

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JohnnyVegas Jan. 30, 2008 @ 6:32 p.m.

Amen to this article.

Well put and on the money.

City/gov compensation, and especially benefits, are the biggest threat to the solvency and well being of our City, our County and our State.

I pray to god OC succeeds in their pension challenge lawsuit that John Moorloch championed, and that Keith Richman's ballot propisition on limiting gov pensions goes on the ballot and succeeds.

http://www.californiapensionreform.com/

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JohnnyVegas Jan. 30, 2008 @ 6:34 p.m.

Interesting article on OC's legal challenge;

O.C. to sue to reduce pensions

Supervisors hope to save millions by repealing part of an agreement reached with deputies.

After months of legal preparation, the Orange County Board of Supervisors voted unanimously Tuesday to file a lawsuit seeking to repeal part of their pension agreement with sheriff's deputies, saying the county cannot afford the expense.

http://www.latimes.com/news/local/la-me-pensions30jan30,1,363419.story

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Anon92107 Jan. 31, 2008 @ 5:27 a.m.

Don, you must attack the Union-Tribune aggressively, because if you don't attack the root cause of San Diego's corruption head on nothing will happen, the corruption will continue and San Diego will become a third world city.

It's time for you to do Pulitzer Prize level investigative reporting of the Union-Tribune Era of Corruption, and the destructive consequences we are experiencing as a way of life in San Diego today.

No one has more facts on U-T corruption than you Don, and you are the best journalist in San Diego history.

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Don Bauder Jan. 31, 2008 @ 10:36 a.m.

Response to post of 12:37 p.m.: The mainstream media and the judiciary are certainly part of the establishment's domination of San Diego -- all to the bad. Best,Don Bauder

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Don Bauder Jan. 31, 2008 @ 10:38 a.m.

Response to Johnny Vegas post of 6:32 p.m.: Yes, Orange County is trying to do the same thing Mike Aguirre got viciously attacked for trying to do. Best, Don Bauder

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Don Bauder Jan. 31, 2008 @ 10:42 a.m.

Response to Johnny Vegas post of 6:34 p.m. Yes, Aguirre's suit was a groundbreaking one and he has taken heat for it. But you will see all kinds of counties, cities, possibly states trying to alter excessive pension benefits through the courts. As in San Diego, the alternative is bankruptcy. Best, Don Bauder

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Don Bauder Jan. 31, 2008 @ 10:45 a.m.

Response to post of 5:27 a.m.: Dishonest reporting by the U-T on many key issues is definitely at the root of corruption. Best, Don Bauder

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Anon92107 Jan. 31, 2008 @ 1:26 p.m.

Response to dbauder 10:45 a.m., Jan 31

I have always found it interesting that Union-Tribune Editors are so ashamed of their deranged rant Editorials, so many of which are attacks against honest San Diegans who threaten their corrupt establishment, that they never put their names on their editorials even though America's Founding Fathers put their names on the Declaration of Independence at hellacious risk to their lives, fortunes and honour.

As a matter of fact there is no difference between the Tories who threatened American Heroes and Patriots in 1776 and the U-T Editors who threaten everyone in San Diego today.

As noted before, their "Ballot Recommendations" puppetmayors Golding, Murphy and Sanders caused hellacious death and property losses, so it is no wonder that U-T Editors like Kittle and Winner continue to hide from responsibility and accountability proving for decades that their kind have absolutely no honor or integrity.

It's time you exposed the U-T Editorial Board that has betrayed San Diego for far too long.

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JF Jan. 31, 2008 @ 2:34 p.m.

Don, I'm a little confused. Was there any original research in this article, or did you just quote Aguirre the whole time?

If you'll forgive me, I'll cross post over here from your other blog, since that one seems to have died.

Here's the problem with applying the OC lawsuit here. Even if they prevail the percentages here aren't the same. The increase in the safety retirement in SD has been minimal compared to that in OC.

Twenty years ago, the pension system here paid 2.5% at 50 and 2.77% at 55. In 1996, the formula was changed to 2.9999% at 55. Then in 2000 it was changed to 3% at 50. With the number of retirements since then, most everyone currently in the FD has been paying the actuarially required rates for at least 12 years now, and close to it for 20. The average safety employee retires at 57, so basically the increase has been .23% in all that time. Less than 10%.

Keep this in mind -- the 3% at 50 was the city's settlement to a lawsuit. Basically, the city was going to lose a case that said that our OT should be counted in our top one year. To avoid that, the city gave us 3% at 50. If you take that away, you'll need to renegotiate that ruling and will likely need to pay retirements based on salary PLUS OT. Good luck planning for that.

Oh, and there was no cap before, so folks retired at 110% or more. Now we're capped at 90%. Actuarially, that probably about evens out. So sorry, the increase in retirement percentage hasn't been the cause of the deficit.

As I've discussed before, I'm against the POSC and frankly, you're a little confused on DROP.

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Don Bauder Jan. 31, 2008 @ 2:51 p.m.

Response to post of 1:26 p.m.: Most papers have unsigned editorials. They reflect the views of the paper on particular topics. That's one thing you can't nail the U-T on. Best,Don Bauder

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JF Jan. 31, 2008 @ 2:54 p.m.

Here's where you're confused on the DROP. The reason that the actuaries stated that it's a money loser is because of the bogus POSC. As I stated, I'm against that. It's been eliminated now and will eventually self-mitigate. I'm also against the SPSP plan, or at least the city paying into it.

The money that goes into a DROP account is the employee's own money. The employee's money is used by SDCERS to earn interest. SDCERS has earned something like 13% over the past few years. Yes, there were a few years around the turn of the century that it was below that. Nonetheless, the retirement system earns money and pays out less money, keeping the rest.

Meanwhile, the city doesn't need to pay into that employees retirement account anymore. If you believe Johnny Vegas' rants, that's a 100% of salary savings. Of course, that's not really true, but the city does save about 9% of salary. (Average 12% of salary into SDCERS - 3.05% into SPSP) That's a lot of money.

Here's the deal. Let's say I retire from the military before I come to work for the city. Should I then give up my military retirement because I'd be double dipping? Of course not. Your objection has been that "it's different because it's the same employer." OK, how? Again, it's the employee's own money. NO other city (or SDCERS) money goes into that pot, except the aforementioned SPSP money.

You're a good financial writer, Don. Let's see your reasons for why the DROP costs money.

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Don Bauder Jan. 31, 2008 @ 2:57 p.m.

Response to post of 2:34 P.M.: The Orange County and San Diego lawsuits are not symmetrical. There are differences, but the objective of getting rid of excessive benefits is the same. I'm glad you are against purchase of service credits. Do you agree that those who paid too little for those credits should give the money back? Best, Don Bauder

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JF Jan. 31, 2008 @ 3:21 p.m.

Don, I believe that those who paid too little should pay the proper amount. That's one reason I never bought time.

My point about the OC suit vs the San Diego problem is that the gains of rolling the system back to 1996 levels simply aren't there. Plus, you'd have additional liabilities by having to add OT into retirements if you tried to roll back Corbett vs SDCERS.

Remember, the city pays an average of 12-13% into Safety employees retirements. (General employees are less) They'd pay 6.2% into Social Security. The difference between the current system and SS is less than 7% of payroll for Safety members and more like 4-5% for General members. Frankly, I don't think that difference is breaking the city. I think that the city's failure to pay into the system is the root cause.

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JohnnyVegas Jan. 31, 2008 @ 5:01 p.m.

DROP is one of the biggest scams gov has ever laid on the taxpayers.

Right behind the 3%@50 scam.

But the front of the line has the purchase of service year credits at 10 cents on the dollar.

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JF Jan. 31, 2008 @ 6:38 p.m.

Johnny, if it was 10 cents on the dollar even I would've bought in. But it wasn't. As usual, you just can't help exaggerating.

Once again, remember that 3% at 50 was the settlement in Corbett vs SDCERS. The alternative is keeping the present (at the time) figure of 2.5% at 50 to 2.9999% at 55 but also including OT in retirement. Why do you think the city was so quick to settle? Did you even read what I wrote above? Did you read the quotes from the settlement that I posted?

And I'm still waiting for you to explain HOW DROP is a scam. Go on, explain it. Since it's an obvious scam and you're a brilliant attorney, I'm sure you can explain the scam to all of us. Oh.. one little condition. You'll have to use numbers and not value statements like, "double dipping". You'll need actual, verifiable proof. Otherwise, I see your objection as nothing more than jealousy.

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Anon92107 Feb. 1, 2008 @ 4:19 a.m.

Response to dbauder 2:51 p.m., Jan 31:

Interesting that you would defend the honor and integrity of the U-T Editorial Board Don. So if I understand you correctly, “That's one thing you can't nail the U-T on” so it is OK for the Fourth Estate to hide from responsibility and accountability and use “Ballot Recommendations” to perpetuate destructive corruption even though the role model our Founding Fathers set put their own lives at hellacious risk to create the U.S. in the first place?

Did it ever occur to you that your Fourth Estate practices Editorial cowardice by hiding from responsibility and accountability for your Editorials, and that this practice has become a threat to our Democracy by the U-T and far too many other newspapers who don’t have the honor and integrity our Founding Fathers did?

The fact is that X & Y generations deserve to know, need to know what civic force is most responsible for the decline of San Diego that is destroying their opportunities, public safety and quality of life today more than ever before.

But it sounds like you feel that there is nothing to be exposed about U-T Editorial Board political corruption even though it is costing lives from the consequences of out of control firestorms, violence, and poverty to feed the U-T establishment greed.

So I finally get the point Don, I am asking the wrong person to help your X & Y generation readers fight back when I ask you to help them.

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Anon92107 Feb. 2, 2008 @ 5:25 a.m.

Response to Don Bauder's opening statement: "Increasingly, it looks as though the nation faces a recession and stocks are in for a bear market. San Diego is almost certainly in a recession already."

Don, We must do everything possible to reboot the construction industry with the highest sense of urgency.

This is most certainly not the time to punish X & Y with usurious interest rates, especially when it is the hellacious profligacy of our Degenerations that preceded them and set them up for the fall.

This week I read a quote in a Nature journal article that characterized the Degenerations’ 20th century as the “Savage Century” of “war, threats of war and genocide”.

In fact, the four of the worst presidents in American history were equally divided between republicans and democrats, Johnson, Nixon, Clinton and Bush-Cheney, they all caused failed wars and betrayed Heroes and Patriots of the American military and the American people. We have damn near bankrupt America because of those wars and the corrupt San Diego and Washington special interests that are still betraying America today.

So our Degenerations have no right to lecture X & Y on morality, ethics, integrity and honor because history shall prove that our Degenerations failed to have those cultural values. We had more opportunities than any people in history and our failures to protect humanity were worse than those of all other peoples in history.

The bottom line is that our Degenerations owe X & Y for the hideous debt we have passed on to them, and at the very least we must do whatever it takes to reboot housing construction and The American Dream ASAP.

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Don Bauder Feb. 6, 2008 @ 8:54 a.m.

Response to post #14: There is no question that the administration's robbing of the pension fund is at the root of the pension woes. Overgenerous benefits are another factor. Best, Don Bauder

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Don Bauder Feb. 6, 2008 @ 8:57 a.m.

Response to post #15: DROP is a scam -- agreed. Best, Don Bauder

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Don Bauder Feb. 6, 2008 @ 11:56 a.m.

Response to pot #16: Double-dipping is a scam. Best, Don Bauder

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Don Bauder Feb. 6, 2008 @ 12:44 p.m.

Response to post #17: I hope I can reach those generations. Best, Don Bauder

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Don Bauder Feb. 6, 2008 @ 12:47 p.m.

Response to post #18: We can't lecture the young on ethics. We're passing all this debt to them. Best, Don Bauder

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Anonymous Feb. 6, 2008 @ 3:55 p.m.

I agree with JF who comments above you and others have failed to describe in detail how the DROP is a scam. You and others believe "if we say it enough times" others will believe too. Mr. Bauder, some of the information you've stated in your piece is vague or just plain wrong. DROP is no different then retiring from one job and then being hired back by the same employer who needs your expertise. I also agree with JF regarding the statement about purchase of service credits. The program was orginally put in place protect employees who did not earn 10 years of "continous" service due to breaks caused by military service to our country. We can thank City executives, for subverting its intent. Executives and other leaders who seem to be ABOVE the law. Nevertheless, no one has explained with factural information how this hire back program rates the term of being described as a scam.

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Anonymous Feb. 7, 2008 @ 3:41 p.m.

I see San Francisco voters just approved a similar program for their public safety officers for a 3 year period with a 67% approval margin...

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Anonymous Feb. 7, 2008 @ 3:54 p.m.

"Proposition B, allowing certain San Francisco police officers eligible for retirement benefits to continue working for up to three years while accruing retirement benefits in tax-deferred retirement accounts, was approved by approximately 65 percent of voters. Supporters of the proposition say the program will help San Francisco's shortage of police officers by allowing the department to retain experienced officers, particularly in the neighborhood patrol and investigation units. They claim the program would be cost-neutral to the city."

Election wrap-up: San Francisco Wednesday, February 06, 2008 | 2:44 AM ABCNEWS CHANNEL 7

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Richard_Rider Feb. 7, 2008 @ 5:28 p.m.

As good as his article was, Don left off two important points on my research:

A. Not included is the 13th month free bonus pension payment paid out in about five out of six years to nonsafety workers for city pension investment returns that are “above expectations” or some such.

B. Far more important: In addition to the pension annual payouts, the nonsafety workers get to leave the residue of their SPSP and DROP pensions to their spouses, lovers, charities, or pets. And we ain’t talking chicken feed here. (Both examples of mine that Don cites assume an 8% growth rate and that ONLY earnings are paid out during the worker's retirement.)

In the first example of a 30 year city worker retiring with two pensions, the bequest to beneficiaries is a lump sum of $961,884. For the DROP participant nonsafety worker (working those extra five years after “retiring”), the lump sum payout upon death would be an astounding $1,345,913 – the equivalent of another 18 years’ top salary.

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Anonymous Feb. 7, 2008 @ 7:24 p.m.

Richard, Richard, Richard... inflamatory and wrong. ... If a city worker ELECTS to use the pension continuance option. Then the worker's pension is actuarily reduced by the life expectancy of the beneficiary. Worker are not allow to choose something that cannot die like an estate for the continuance option for obvious reasons.

Here is a simply example. Lets say I get 30K a year in pension at the 100% option. IF I chose a 50% continuance for my spouse my annual pension is reduced to 23K with the 7K retained by the system and earning interest. If I die my spouse get the 50% for the remainder of her life not some huge lump sum as you alluded.
Now lets say I also have a DROP account. For 5 years I've deposited my 30K + my SPSP deposit and city match, earned interest and yes maybe a 13th check if the board grants one each year. When I retire I make a decision, leave my nest egg with SDCERS, buy an annuity based upon my life expectancy, roll the money into an traditional IRA, or heaven forbid, take the money as a lump sum distribution and pay Uncle Sam a hell of lot of tax. Lets say I buy a 20 year annunity and I die 10 years later. My beneificary gets to take the lump sum payment or the remainder of my 10 years. No more for God sake it an annunity. Doesn't matter if SDCERS kept my money or if I put it into a traditional IRA, its my asset and my beneficiary still gets it.

Sure its nice to sensationalize the DROP program those huge MANAGMEMENT DROP accounts. I find them obscene too. But if you listened to Mayor Sanders today on Roger Hedgecock's show, he clearly stated DROP wasn't ever intended to be a management perk. The City executives realize it was a golden goose and refused to kill it. Going for greed over the public good. It wasn't the hard working, line level men and women serving the citizen who made this mess. Indivdually they did not have the power to do so. No my friend, it was the political and management leaders of the mid to late 90's who benefitted.

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Anonymous Feb. 7, 2008 @ 7:27 p.m.

BTW as I mentioned early in the thread. No one, you, Don, Billy Bob Henry, Johnny Vegas his other personality, has explained in clear precise language how DROP is a scam. Saying so doesn't make it so. Is it completely cost neutral, I guess not if the actuarial reports are correct. But being cost neutral and a scam are not the same either.

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Richard_Rider Feb. 8, 2008 @ 4:30 p.m.

VERY impressive critique, SDBLOGGER! You obviously know much more than most city workers about your plans. Nevertheless, in the end you are as wrong as the more uninformed opponents with whom I discuss such matters.

BTW, I'd be more impressed with our critique if you didn't hide behind an anonymous name. I don't, and neither should you. I suspect you are someone of importance in the city bureaucracy, or perhaps a city labor union activist.

To start with, you are inferring that the under-funded city defined benefit (DB) plan and the little-known SPSP defined contribution (DC) plan work pretty much the same way. They don’t.

You are correct that the DB plan payout is dependent on the annuity option taken, with the appropriate reduction in the annuity payout if less than a "life only" option is chosen. But the huge lump sum payouts I'm discussing are all from the SPSP (and other DC) plans – as I understand it, the city offers no annuity option on these funds!

Sure, one COULD retire and then go buy some IRA annuity payout contract from some insurance company (an unwise but safe choice, if inflation is not a concern), but apparently most city workers choose to take their SPSP proceeds and roll them over into investment IRA’s.

If one retires at age 55, rolling the SPSP plans into regular IRA’s defers the need for mandatory withdrawals for 15 ½ years – and then one must start making at least the minimum IRS-mandated withdrawals, based on life expectancy. Hence there likely is still a ton of IRA money left for distribution to beneficiaries once you kick the bucket (unless you live to 100+).

In this instance, if the examples I presented paid out the SPSP earnings each year and died before age 70 ½, then the lump sums I show would be exactly what their beneficiaries would receive. Obviously if they pulled out the money faster, there would be less to bequest. Conversely, if they left the SPSP funds to compound, there’d be more – a LOT more.

Or one could consider taking the ROTH IRA option – paying the taxes now but then earning tax free earnings with no need to make ANY withdrawals during one’s retirement years. The money finally paid out would be tax free, so it while it would be maybe 40% less than the pretax dollar payout, the after tax value of the payout would be about the same – any all interim earnings would be tax free. For most workers retiring with over $70,000 of income, the ROTH option at such a relatively young age definitely should be considered.

BTW, it gets more interesting because the employee contributions are paid with AFTER tax dollars, so they will not be taxed again upon distribution.

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Richard_Rider Feb. 8, 2008 @ 4:37 p.m.

(continued) Admittedly, my figures are by necessity based on a simplistic model. It is impossible to calculate all the annuity choices. My goal was to show the value of the lump sum. IF the employee pulls money out faster than the presumed 8% rate of growth, then the lump sum will be smaller. But the annual payout will be commensurately bigger than the figures I gave, so that’s a wash, considering the time value of money.

As far as I know, no other city in the county has two funded pension plans – perhaps none in the entire state. What possible reason can you give for San Diego taxpayers funding two pension plans, when the rest of the cities don’t?

The bottom line is that it is insane for taxpayers to pay their “public servants” higher salaries than the private sector, and then grant them two pensions that together are 4-8 times higher than what the taxpayers get. You can quibble all you want, SDBLOGGER – you and your city labor unions are (continued) Admittedly, my figures are by necessity based on a simplistic model. It is impossible to calculate all the annuity choices. My goal was to show the value of the lump sum. IF the employee pulls money out faster than the presumed 8% rate of growth, then the lump sum will be smaller. But the annual payout will be commensurately bigger than the figures I gave, so that’s a wash, considering the time value of money.

As far as I know, no other city in the county has two funded pension plans – perhaps none in the entire state. What possible reason can you give for San Diego taxpayers funding two pension plans, when the rest of the cities don’t?

The bottom line is that it is insane for taxpayers to pay their “public servants” higher salaries than the private sector, and then grant them two pensions that together are 4-8 times higher than what the taxpayers get. You can quibble all you want, SDBLOGGER – you and your city labor unions are running quite literally the biggest con job in town.

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Richard_Rider Feb. 8, 2008 @ 4:39 p.m.

SDBLOGGER, the last part of your comment tries to deflect blame for this mess to a few key bureaucrats and politicians – claiming that the rest of the city’s hard working employees are innocent babes in the woods, and deserve all that they get.

Granted, many of our past key decision making miscreants should be stripped of their pensions and deserve jail time – especially the politicians. But I don’t buy for one minute the “innocent employee” pitch. It’s true that an INDIVIDUAL general employee could not have influenced this, but the employees’ labor unions certainly could – and did. The city labor unions are the key who wins elections – and they’ve put in the most compliant politicians they could find – and have always retained a majority of them in your pocket. You labor union employees voted for the leadership you wanted, and they did what you wanted. You reaped the benefits – accept your share of the blame as well.

The key is that we have to put a tourniquet on this fiscal hemorrhaging ASAP. That means two tier benefits for new employees, employee labor contract concessions and aggressive competitive bidding out of as many city services as possible.

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Richard_Rider Feb. 8, 2008 @ 4:40 p.m.

The problems with DROP are many. But most of all, come back to the fundamental question – why should taxpayers pay a retiring age 60 employee an opulent 225% pension? There is zero justification – it is legalized theft of taxpayer assets.

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Anonymous Feb. 8, 2008 @ 6:58 p.m.

225% what a load of manure. Pensions are capped at 90% with a few adjusted for court rulings. Adding the DROP annunity to the SDCERS Pension is a gross and misleading statement. Richard, if you contine to tell woppers like the statement above you soon be in need of Michael Jackson's plastic surgeon.

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Richard_Rider Feb. 8, 2008 @ 7:24 p.m.

Whoops! I take back what I said about you being knowledgeable. You're not.

Since there is an outside chance that for you, repetition is the key to learning, let's review.

There are TWO city pensions for non-safety employees and lifeguards. It doesn't matter if they are DB or DC plans -- they are both pension retirement plans:

  1. The DB plan. For a 30 year non-safety employee, that comes to 75% of his highest salary -- capped at 90%, as you say. Well, not really, as government DB pensions get up to 2% annual COL increases, something unheard of in the private sector.

  2. The SDSP DC plan. Assuming that the money earns 8% on average while accumulating, and assuming that the employee opts to receive annually ONLY the annual 8% earnings, that payout comes to about 65% of the employee's highest salary.

The COMBINED annual retirement income comes to 140% of the retiree's highest salary.

The same math applies to a 35 year employee who goes 5 years into DROP (and five more years of compound growth). For this employee, the COMBINED pensions (actually, for a DROP participant, there are FOUR pensions) with the 8% payout comes to 225% of salary.

I'm prepared to provide the documentation and spreadsheet. Have you got the guts to send us your email address, Mr. Anonymous?

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Anonymous Feb. 9, 2008 @ 9 a.m.

Although not identical, the private sector has similar programs. As you know city workers do not particiapate in social security. In 1981 then Mayor Pete Wilson and the City removed city employees from it replacing it with a program where the CITY would have to PAY LESS. So someome works for a private company for 30 years and gets a pension and Social Security. A city worker gets a pension and Supplemental Pension or SP account. They don't get Social Security. So if you combine the private employee and social security and city employee and SP they are close to the same. Then if the private employee goes back to work for 5 more years for because his private employer wanted him back for his knowledge and expertise then they have their private DROP. If the private employee invested wisely they can get similar growth. There are differences.... the COLA.. but its not a guarantee and capped @ 2%. The SDCERS board must authorize it annually from zero up to 2%. The city council decided to follow the feds example of COLA for Social...hmmm that sounds similar too. More later....

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JF Feb. 9, 2008 @ 10:06 a.m.

That's exactly the point Richard, SPSP was a negotiated trade off with the city. The city wanted to save money, so it gave the employees SPSP. Obviously, I'm not a lawyer, but I think that employees would have a pretty strong case to force the city to re-enter SS should a negotiated and vested retirement benefit be removed. You'll have to thank Pete Wilson (San Diego's best mayor, according to some) for that.

The point you keep missing with DROP is that the 10 year average earnings of SDCERS is about 12% (working from memory here). DROP is the employee's own money. It's no different than putting that money in an outside annuity, except that SDCERS gets the profit from the difference between what it earns (12%) and what it pays (8%). How much is that a year? Remember -- that's how banks make their money.

There is no "theft of taxpayer assets". They aren't taxpayer assets to begin with. The assets involved belong to the employee -- they are the employee's own retirement dollars.

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Anonymous Feb. 9, 2008 @ 11:42 a.m.

JF, you make a salient point. It was a negotiated trade off. But they didn't want to "save" money. They wanted to spend it.

What did they spend it on? The GOP convention. No accounting. No one from the vast city workforce peeped about that.

They spent it demolishing the Murph into the Q, building a scorned Taj Mahal training facility, and the notorious ticket guarantee that Rider opposed early and often.

The corrupt officials spent it on the white elephant Petco Park, and in condemning and reselling at firesale prices most the surrounding land to John Moores, who employs the same former city senior management that negotiated DROP to free up the money. You notice how much Casey Gwinn got for his retirement?

The union big wigs kept quiet all the while and made sure their members kept mum too. The UT with the notable exception of Don Bauder, was awol or actively covering up these looming fiscal problems with happy "keep the faith" nonsense. The politicians were bought and the band wagon populace was thrilled by a one-time-only steriod and meth fueled run for the pennant days before the vote.

The public unions were indeed complicit in all this. For this reason, pure shame at their cowardice in not blowing the whistle, they should do the honorable thing and renegotiate their pension contracts for the good of the city.

They should also start telling what they know, and naming names, so we might recover some of our money. Coming clean about the corruption is the best way to safeguard your pensions in the long run.

Best,

(yet another sdblogger)

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Richard_Rider Feb. 9, 2008 @ 1:39 p.m.

SDBLOGGER, many thanks for digging yourself ever deeper into a hole. You are already in WAY over your head.

IF the city switched from SS to SPSP, kindly explain to us how come ONLY the city of San Diego has two pension plans? To my knowledge, EVERY OTHER CITY IN SAN DIEGO (and perhaps the state) has ONE pension plan -- AND does not pay into SS. IF a second pension plan was required to replace SS, how come our city's police and firefighters have no second pension plan, and no SS? Hmmm?????

You make an amazing assertion that further demonstrates how incredibly out of touch city workers are with the private sector. You claim that the typical private sector pension coupled with the SS payments "are close to the same" as the city's double pension plans. Is three to five times a pension payment "close to the same"??

There are absolutely zero reasons for the city to have two pension plans. It was an incredible, needless giveaway, and should be ended ASAP.

The best choice is to drop the DB plan, and continue only the SPSP plan, perhaps matching another 2% of employee contributions. That would eliminate the chronic underfunding, and the unfunded liability problem.

Finally, you are of course aware (but somehow forgot to mention) that it is the rare city employee who does not receive a modest social security pension on TOP of the other two pensions. 40 quarters (10 years) of minimal SS payments over the worker's lifetime qualifies him or her for SS. Since the worker receives a government pension, there is an offset formula -- though that only reduces, but does not eliminate the SS penalty.

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Richard_Rider Feb. 9, 2008 @ 1:46 p.m.

The city switched to SPSP to save money? How did that save the city money? With either SPSP or SS, the city paid 6% into a second retirement plan.

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Richard_Rider Feb. 9, 2008 @ 1:54 p.m.

JF, SPSP was not a "negotiated tradeoff" -- it was a unilateral giveaway that no other city saw fit to implement. Remember, the city's "negotiators" were awarding themselves the same percentage benefits they were giving to the workers -- a HUGE conflict of interest. The was no negotiation!

The 8% DROP return apparently is a lifetime guarantee. If the fund's return drops below that, taxpayers have to make up 100% of that shortfall. Can you name another investment in America with that rock-solid guaranteed, high lifetime rate of return? Even close?

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JF Feb. 9, 2008 @ 3:01 p.m.

In response to post 42: Richard, SPSP certainly saves money, or rather saves the city from making payments. The retirement system is in the red because the city didn't pay into it. The city can't do that with SS. To allow that, the city had to negotiate with the employee unions and broker the switch from SS to SPSP. Once again, thank "San Diego's greatest mayor" Pete Wilson. I'm trying to think... who's advising Mayor Sanders now? Oh yeah, Pete Wilson.

Post 43: The city hires outside negotiators now. I'm not sure about back then.

If DROP return goes below 8% the taxpayers are indeed on the hook. How about we make it fair. To prevent that, let's just make the DROP return the same as the yearly return for SDCERS. Are you in for that?

Oh wait... then SDCERS wouldn't make money, now would they? Have you figured out the return on the $125 million in DROP money that's in SDCERS now? At 2% (The 10 year average of 10% minus the 8% guarantee) that $125 million makes about $2.5 million a year if interest is compounded quarterly.

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JF Feb. 9, 2008 @ 3:14 p.m.

Richard, here's one for you. A worker earning Social Security gets an additional 50% of their benefit for a non-working spouse. So in reality, they get 150% of what their entitled to for their time spent working and the amount they earned. I sure don't see you tilting windmills over that. Remove that benefit and SS might be saved.

You're trying to add DROP money as a percentage of pay. That's like adding a 401K as percentage of pay. What you clearly don't understand it that it's the employees OWN MONEY. It's no different than if I maxed out my 401K with my own pay and had a million bucks sitting there. If I took $50K/year out of that, would you then add that to my retirement check and say I made 150% of salary? Of course not.

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Richard_Rider Feb. 9, 2008 @ 6:58 p.m.

JF, in comment #44, you are trying to snooker the readers by mixing apples with kumquats. The defined benefit (DB) pension has often been underfunded, though probably not much back in the early 1980s when the DB pension benefits were considerably more modest, and SPSP was first implemented.

But the city's obligation to the SS benefit (6% of payroll) was never underfunded, and when it was replaced with 6% of payroll for SPSP, it was never underfunded. Not by a single dollar. EVER! And nothing was saved by the switch.

This switch had NOTHING to do with the DB underfunding problem, nor did it alleviate the underfunding problem in any way. Nor was it required that a second pension be set up. The DB plan was all that was needed to opt out of the SS plan – that’s what the other cities did.

How many times do I have to point this out -- switching from SS to SPSP didn't save the city a dime. SPSP was a much better deal than SS for the city workers, but there shouldn’t have been two city pensions set up in the first place.

Actually, it's likely that the SPSP plan costs the city a bit more than the old SS plan, given that there is no ceiling no earnings subject to the 6% matching. In 1982 the maximum salary subject to the SS 6% employer/employee deduction was $32,400. SPSP has no such limitation. The city must match the employees' contributions up to the maximum salary paid, which, for the fat cats, is much higher than the SS ceiling.

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Richard_Rider Feb. 9, 2008 @ 6:59 p.m.

Earlier in comment #38 SDBlogger made the amazing argument that private workers pension and SS come to about what city workers get. I pointed out the huge difference in public vs. private pension payout.

But I forgot to mention one important part of the ridiculous difference. SD city workers can start their full earned DB pension at age 55. Police and firefighters can retire at age 50. In the private sector, pensions aren’t available until age 60 at the earliest – and often age 65. Full SS payouts for today’s retirees can’t be received until age 66 – and that retirement year is already scheduled to rise for future retirees.

Hence unfair difference in pensions are far larger than even I frequently argue.

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Richard_Rider Feb. 9, 2008 @ 7:01 p.m.

In post #43 JF stumbles upon a good idea. He thinks that I would be opposed to letting the DROP participants get the full return that the DROP fund earns. Quite the contrary! I think ALL pensions should pay out what they earn (net after expenses) – no less and, most important, no more. That’s the essence of a defined contribution (DC) plan. We should drop the 8% DROP guarantee, and let the participants receive whatever the fund earns. No guarantees.

Of course, his idea presupposes we should continue DROP, which we shouldn’t. It’s puzzling that first the workers got their retirement age lowered, and then many more wanted to continue working in DROP. Better that the retirement more closely reflect the reality of private sector workers. No full pension retirement before age 60, and probably age 62 or later.

Private sector workers are working longer, while public sector workers are retiring earlier. It ain’t right.

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JF Feb. 9, 2008 @ 9:47 p.m.

Richard, You wrote, "Private sector workers are working longer, while public sector workers are retiring earlier. It ain’t right." Turko references aside, it's perfectly right given that city employees pay an average of 12% into their retirement vs. 6.2% for SS. (2005 SDCERS CAFR) The amount paid takes the age of hire and thus the assumed age of retirement into account.

You're finally starting to see that DROP is nothing more than a DC plan that gets nothing but the employee's own money. Basically, it's an unmatched 401K style system with a guaranteed return. And yes, the city still makes money on that, though you're obviously willing to give up that $2.5 million.

Neither you, nor anyone else has ever explained why DROP is bad for the city financially. That's because you can't. You use terms like "It ain't right" and "double dipping". Sorry, but those are value statements that can't be proven on a spreadsheet. Show me the numbers.

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Anonymous Feb. 10, 2008 @ 12:56 a.m.

Richard the City's contribution to SPSP is 3.05% not 6.00%. The employee pays 3.05% and the city matches it 3.05% for a total of 6.10% for general and lifeguard employees. Police and Fire do not particiape in SPSP because they earn/negotiated for a higher retirement "multiplier".

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JF Feb. 9, 2008 @ 10:13 p.m.

In post #46, Richard wrote, "...back in the early 1980s when the DB pension benefits were considerably more modest..."

Once again, sorry Richard, but firefighters were able to retire back then at age 50 with 2.5% for each year of work. The factor increased each year to a max of 2.77% at 55. That was changed to 2.5% at 50 and 2.9999% at 55 in 1996. The increase to 3% at 50 came in 2000. That's a whole 20% increase in benefit in almost 30 years.

Meanwhile, retirements went from being uncapped to being capped at 90%. Yes, 90% is a lot... but it's less than the 100%+ that many member got previously.

It's important to note that the increase to 3% @ 50 was the result of a lawsuit known as the Corbett case. The city lost, obviously. Going back on the Corbett case would likely force the city to 1) Remove the 90% cap, 2) Start including OT in retirement calculations based on the Ventura case. Are you sure you want that? I'll be glad to retire at 55 with a 2.9999% factor and my OT included in my top one year and no cap... I'll sign that tomorrow. Bring it on!

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JF Feb. 10, 2008 @ 8:47 a.m.

Oh, and Richard? You stated that there is no other city that contributes to a DB and a DC plan? Remember? It took a whole five minutes on Google to discover that the City of Escondido contributes to both a DB plan and a 401K for employees.

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Richard_Rider Feb. 13, 2008 @ 10:33 a.m.

SDBlogger, congratulations! In comment #51, you’re stepping up your game! This time you are only half wrong.

Yes, the city MANDATES a 3% general (and lifeguard) city employee SPSP payroll contribution which it matches – but it ALLOWS these city employees to contribute another 3.1% which the taxpayer ALSO matches. Only a complete idiot would not put in the full 6.1% for the 100% match.

If you do some searches of private sector 401k plans, you’ll find relatively few such DC plans where the employer matches more than 3-4% of the employee contributions. And almost none of those employers (except perhaps semi-government companies such as monopoly utilities) also offer these same employees a defined benefit plan such as our city gives away.

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Richard_Rider Feb. 13, 2008 @ 10:28 a.m.

JR, in your comment #49, You claim that the city workers pay an average of 12% into their retirement plans. Not so. More detail will follow in another comment.

Put that error aside. You claim that since city employees pay 12% into pensions vs. the private sector paying 6% for SS, then 140% city employee pensions at age 55 are “perfectly right.” The average SS recipient gets between 15% and 35% of their highest salary if they wait to take full withdrawal at age 66. So double your contribution to pensions as a city employee and get 140% pensions at age 55? Turko called it – it ain’t right. Neither from a fairness nor mathematical standard.

You further assert that the city takes the age of hire and the assumed retirement age into account. Again, not so. When it comes to the city’s DB plans, the formulas are negotiated (and raised retroactively) politically, with no real concern by anyone in the “negotiation” process as to how the benefits will actually be paid. EVERYONE in the negotiation process profits from underfunded, inflated pensions. Any actuary who points out the underfunding miscalculations will be replaced by one who better understands the game.

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Richard_Rider Feb. 13, 2008 @ 10:29 a.m.

JF, thanks for the historical info on the increase in the firefighter’s pension since the early 1980’s in your comment #50. BTW, I’d appreciate an online reference, if you can provide it.

I realize that hanging on to (and further inflating) your firefighter benefits is your ditch to die in. But this discussion has primarily been about the general (nonsafety) employees’ pensions since about 1982, the DROP program and the SPSP plan.

As a city employee, you and your union have access to information that I have to file written public records requests and perhaps take court action to get to. Mayor Sanders has all but closed off public access to information about the city -- info that has not been already screened by the Mayor’s flunkies – primarily Fred Sainz. But city employees can get on the Intranet, or call other city employees, or get their labor union to come up with this info relatively easily.

So check this out for about 1982 and report back (I know some of the answers, but not all of them):

  1. For general employees, what was the DB pension formula prior to the implementation of SPSP in 1982?

  2. For general employees AND firefighters, was the DB payout figured on the average of the highest three years (or perhaps only the LAST three years), vs. today when the DB payout is based on the highest SINGLE year’s pay?

  3. What was the 1982 minimum age for a general employee’s full retirement? Assuming that that full retirement age has dropped from 60 (or 62) down to the present age 55, that’s a substantial increase in the pension payout.

(continued)

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Richard_Rider Feb. 13, 2008 @ 10:31 a.m.

(continued)

  1. Was the city paying most city employees’ share of the DB pension in 1982, as they were as recently as 2004 (don’t have more recent figures)? That’s right – the city has been paying most general employees’ 5.8% DB pension contribution (presumably the union general employees). It’s called the “employee contribution offset,” an innocuous term to hide the fact that workers are not paying their half of the DB pension cost – we taxpayers are. I’m pretty sure that the city’s managers no longer get this freebie, but I suspect most union general employees are still getting this free ride. As I understand it, in 2004 this giveaway cost the city $34 million.

  2. In 1982, could employees buy up to five years of credit at deeply discounted rates, as they have been able to do in recent times?

  3. What was the life expectancy of a retiring city worker in 1982, and what is that expectancy today, and in the future? Okay, okay, you won’t have access to that info.

But one of the many reasons that all DB pensions go into the red (and will go DEEPER into the red) is because clever pro-government actuaries use outdated mortality tables. By pretending that people will die younger than really is the case, pensions can be increased and underfunded for years before the harsh truth becomes apparent – you city employees live too long!

We taxpayers wouldn’t care if you were getting paid JUST a 401-k type plan where we had no unfunded liability, but guaranteed DB plans leave us to cough up 100% of the shortfall. That might bother you (at least a little) too, but, like many city employees and most city firefighters, you don’t LIVE in the city, and almost surely won’t retire here.

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Richard_Rider Feb. 13, 2008 @ 10:35 a.m.

JF, in your comment #52 about Escondido's 401k plan, I learned something! Thank you.

I didn’t know that Escondido subsidized their employees’ 401k plan. But if you do a bit more checking, you’ll find that the city does NOT match the employees’ contributions, as does San Diego’s SPSP plan.

Remember back why I brought up the point. I know of no city that REPLACED their SS plan with an SPSP-type plan AND kept a full DB plan. Indeed, this Escondido plan was not started until 1995 – long after the city had stopped paying into SS – dropping it since they had a DB plan. Their standard government pension plan (a DB plan) is all that was needed to get out of SS.

Escondido taxpayers simply give every employee either $900 or $1,200 annually for their 401k plan (depending on job category and labor agreement, apparently). It appears that the Escondido employee can put zero in, and still get this gift.

It is quite different from the formula used for employer contributions to SS and SPSP, which is a match of the employee’s contribution.

BTW, this gift rather than a matching program apparently was why my Google searches did not find this Escondido plan. Just about every DC plan out there has some sort of matching formula – and I surely used “matching” in my search.

That being said, this Escondido gift is only a small fraction of what San Diego city general employees get – 6.1% of their SD pay. The average SD city employee makes about $60,000, so that comes to a bit over $3,600 taxpayer contribution annually to their SPSP plan – three to four times the Escondido 401k plan subsidy.

So my basic assertion still stands – the city of San Diego was under no obligation to set up a DC plan in order to opt out of the SS system.

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Richard_Rider Feb. 13, 2008 @ 10:37 a.m.

One reason the DROP program is not revenue neutral is that a general employee in the DROP program continues to get SPSP matching contributions for the minimum 3% amount of salary. Nobody looks at this extra giveaway.

It’s true that the DROP contributions are all the employee’s money. JF, you infer that the DROP money constitutes a large portion of the 225% pensions. Not as much as you think.

Of the 225% total annual pension payout I described for a 35 year general employee with 5 years in DROP (and assuming 8% earned on SPSP plan) retiring at age 60, only about 16.8% of that payout is from the employee DROP contributions. The rest is from the other three pension plans.

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JF Feb. 13, 2008 @ 8:30 p.m.

Richard, I'll start with your last comment.

The general employee you spoke of would have received that 3% either way. And the city is no longer paying the average 13.65% (for all employees, including safety) into SDCERS. Sorry, but that's a little higher than the 12% I quoted earlier. Don't believe me? Look to the 2006 SDCERS CAFR, page 57. That does create a slightly larger savings if we switched completely to SS. Roughly 7% of payroll. Less if there's a DC plan -- say 7% less? That's in the ballpark for matching 401K contributions.

It's interesting to note that the "catch-up" amortization is higher at 14.26%. In other words, had the city made it's payments on time it would be saving about half of it's retirement bill. (Not counting "pick-up", some of which is covered by the higher percentage)

Speaking of pick up, yes the city pays some of the employee's part of retirement. It saves the city money over giving a pay raise, so they prefer pick up over a pay raise. I would absolutely love to see the city eliminate pick up and give me an equivalent pay raise. Know why? Note that almost all other cities pay ALL of an employee's contributions while the City of SD only covers about half.

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JF Feb. 13, 2008 @ 8:45 p.m.

Sorry, but I'm not going to go rooting through city documents not available online and provide them to you. You were castigating myself and others earlier for not using our real names. I believe you identified why we don't in post #55. The mayor has a strict policy against release of information. Anything I post here is readily available to you online. The information about FD retirement percentages was obtained at home from city council dockets available to the general public.

Let's see -- about your comment about "outdated" actuarial tables... the actuarial section of that same 2006 SDCERS CAFR says that they use the 1994 Uninsured Pensioner tables. This is one of the tables recommended by the American Academy of Actuaries. So sorry... your "clever pro-government" actuary conspiracy theory is not so hot. I believe that these are the same tables that insurance companies use... and they want you to live longer.

You also stated in post 54 that I was mistaken in stating that the city takes age of hire into account. Again, you're wrong here. Here's a quote from the fire member brochure available at: http://sdcers.org/images/pdf/fire_safety_member.pdf "Member contributions vary and are based on your age at the time you become a member of SDCERS".

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