Monday, June 1, 2009

$500,000 A Year Civil Servant Pensions - Only In California

Today's Matier and Ross column does an excellent job of exposing what lies at the heart of the budget messes at the city, county and state levels in California.

Key points from the article -- 246 former San Francisco employees receive pensions in excess of $100,000 a year. Fifteen are above $150,000.

I don't have the equivalent numbers for Oakland, Alameda County, Bart and all the other agencies which are sticking it to us. I welcome a reader to contribute the numbers.

But, I feel confident they look the same, and from the sound of it, the numbers will just continue to get worse, courtesy of longer lifespans and the ridiculous union contracts put into place over the last 10 years.

I don't know of there's any way to shed these payouts, short of a bankruptcy. But these civil-servant salaries like at the heart of the budget mess. Closing every park in the state and euthanizing stray kittens more quickly -- both of which have been proposed at the state level -- would do far less than reforming these pensions to improve our budget picture.

There is one element of the problem which Matier and Ross did not discuss. That is the rate of return expectation used in computing the amount of money we need in the retirement system now to pay projected future benefits.

Setting the rate of return number higher has the effect of lowering how much must be contributed to the plan, since more is expected to come in through investment income. Apparently, for the past decade this expectation has been set at something like 8 percent a year.

Sadly, investment returns for the past decade have been more like zero percent. And, there's every indication that they will continue to be anemic in coming years.

So, not only are we faced with a tidal wave on the "demand" side of the equation, with retirees now routinely commanding six-figure salaries in retirement. We also are looking at a "supply" side disaster, with insufficient investment returns to pay for what has been promised.

Personally, I think the state and numerous cities and counties all need to go bankrupt to get out from under these contracts. I see no other way to reduce promised pension benefits, since the unions obviously won't agree to concessions.


  1. Even if we were able to get out of the contracts, do you think they'd negotiate better the next time?

    It seems there should be cap. No matter what you did while on the job, $100k / year seems a pretty good pension. We talk about the big numbers but really it's that *everyone* is getting 90% or whatever of their salary, right?

    Seems there should be a sliding scale.

  2. I enjoyed this article. To the above comment I say 100k is an absurd pension for a government private sector jobs offer a pension at all.

    People need to manage their money, their lives, their investments........