PENSIONS
The $366 Billion Outrage
All across America, state and city workers are retiring early with unthinkably rich pay packages. Guess who's paying for it? You are.
By Janice Revell
Let's just call it what it is: Gaming the system. And it's a game that has already resulted in skyrocketing tax increases and the loss of public services across the country—from the shutdown of libraries and community centers to the gutting of many local police and fire departments. It is also a game that is played in the nether regions of public finance, in the fine print of lengthy contracts that hardly anybody sees. As with so many other recent scandals—from Dick Grasso's $140 million pay package to CEOs of bankrupt airlines padding their own retirement accounts to big corporations manufacturing "earnings" that don't really exist—this one has to do with the generally ignored realm of pensions. But here the beneficiaries of the shell game may come as a surprise: school superintendents, librarians, sanitation workers, county clerks, and a host of other public servants. By now you can probably guess who's paying for it. That's right: you.
If you've read the metro section of your local newspaper—or seen recent reports in the Los Angeles Times, the Chicago Tribune, or the New York Times—you may have heard about some state and municipal employees receiving outsized pension payouts, far above what they ever made while working. But chances are you have a sense that the excesses are isolated incidents.
As shocking as it may be, though, the public pension morass is bigger, more wide ranging, and ultimately more costly than anything you've seen in the corporate world. The practices, quietly approved by elected officials, allow workers to dramatically spike their pre-retirement compensation, to retire on more than 100% of their pay, and to draw both their salaries and pensions, with guaranteed market returns, simultaneously.
That's what you'll find in San Diego, for instance, where a city worker qualifying for retirement can instead remain on the job and receive both his salary and an early-activated pension through a so-called deferred retirement option plan, or DROP. That pension, deposited into a special account, earns a guaranteed 8% annual rate of interest, plus a 2% annual cost-of-living adjustment. When the employee actually decides to retire—for real, that is—he can either collect the amount that has accumulated in his special pension account or let it keep compounding at that generous rate of return indefinitely. Add it all up, says Diann Shipione, a trustee of the San Diego City Employees' Retirement System, and the average city worker participating in the plan, earning about $50,000 a year, is eligible to collect a lump sum of about $305,000 at retirement. A fire battalion chief will receive $780,000; a senior librarian will haul in $765,000. But don't be confused: That isn't instead of an annual pension payout; it is on top of it. The post-retirement annual pension payout is equal to 75% of their salary for workers with 30 years' service, a payout that increases 2% a year.
Pension Deficit Disorder
State and municipal pension giveaways are having a devestating effect on government budgets across America. Even in states where pension funds are flush, many local coffers have been hit hard.
Colorado Lawmakers want almost half a billion dollars extra from taxpayers by 2011 to cover pension shortfalls.
Dearborn, Mich. Increasing pension payments by $2 million this year and laying off 70 teachers.
Syracuse, N.Y. Facing a property tax increase of 44% to cover eightfold increase in pension costs over last two years.
Hanover, Pa. Property taxes are up by 50% in 2004.
San Diego Next year's budget calls for reducing some police services, closing 15 community centers, and shutting libraries on Sundays.
Houma, La. Because pension costs have doubled, police department cannot afford new guns or cars.
Houston Property taxes could rise by at least 15%.
San Diego, you're thinking, must be one heck of a revenue-generating machine. It must be all those tourists who make the pilgrimage to the famed San Diego Zoo. Try again. The city doesn't have nearly enough money set aside to pay for those lush retirement benefits. The pension fund is short by about
$1.1 billion and counting. That's because, for almost a decade now, while it has been continually sweetening the pension plan, the city council has also voted to give the pension system far less money than its actuary recommended. But those pension benefits must be paid—they're protected by California law, just as public pensions are constitutionally guaranteed or protected in 40 other states.
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