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Sinking the state

Will public employee pensions bankrupt California?

By William LobdellPublished: April 01, 2010

I’ve attended two retirement parties in recent months. Both of my friends were all of 50 years old. They retired with 90 percent of their final annual pay and a generous health-care package. They were public employees.
I’m turning 50 later this year, and my retirement is nowhere in sight. In fact, because of the economy, I’ve recently had to use some of the money I’d socked away for my golden years just to pay some bills.
I’m mad as hell, and I’m going to have to take it some more. No one seems to want to stop the insanity of handing out unsustainable public pensions in California; instead, we taxpayers just sink deeper into debt.
Californians have totaled at least $237 billion in debt in funding retired public workers, though the actual figure may be north of a half-trillion dollars. We’ve racked up that debt in little more than a decade, when the state Legislature passed a law that allowed California Highway Patrol officers to retire at age 50 with 90 percent of their pay. The formula was soon adopted by other public employee unions.
If not radically reformed, California’s public pension scam will come to a grinding halt. Taxpayers simply can’t fund two sets of public employees (the lower-paid group and the higher-paid set of retirees).
So far, the politicians – and the public unions that intimidate them – have done little to fix the pending disaster. There’s a financial tsunami off shore that everyone can see, but our politicians – and the public – keep splashing on the sunscreen and sipping on Coronas.
Here’s a typical response from a union official (bold emphasis is mine):
“We’re all for anything that shores up the retirement system and makes sure we can guarantee the promises we made to employees,” said Terry Brennand, senior government relations advocate for the California State Council of Service Employees International Union, in an interview with the Los Angeles Daily News.
Guarantees in business aren’t what they used to be. Promises should be kept to any employee, but reality happens. Many in the private sector have been laid off, had their health coverage reduced, had their employer stop making contributions to their 401(k) or had their retirement funds stolen.
In O.C., Supervisor John Moorlach – a CPA who predicted the county’s bankruptcy – has led the effort to dig out of the pension hole, taking more than $1 billion from the county’s $1.4 billion unfunded liability.
The state gubernatorial candidates promise pension reform, with the Republicans offering to raise the retirement age and switch to a 401(k) plan. These are common-sense solutions, but common sense has so far been a stranger to this issue.
I have other friends my age who went into public service, and I’ll be attending more retirement parties. They won the career lottery and will have roughly four decades to take up new hobbies, travel, start a new career, visit children and grandchildren, sit on the beach, read, write or volunteer.
The rest of us do not have those options. We will keep working. And we will keep accumulating billions – and maybe trillions – in state debt caused by the public retirement system until our collective back breaks under the weight.
Until then, have a Corona on me.

Readers Feedback:

Agree 100%. This is causing a strong class segmentation that will destroy the fabric of our society and ruin the capitalistic work ethic central to our system.
Comment at 4/19/2010
Not only will pensions bankrupt the state, but it is just plain wrong. Government and Union pensions have no place in our current society. Why should a CHP officer get to retire at 50 with 90% pay when citizens who work for private institutions get to retire at 62 with social security? I'm 29 and I doubt I will even get that.
Comment at 4/19/2010
Great article. I also have a friend in the public sector who routinely laughs as me for being a small business owner instead of a government worker. Who do these people think supports them, though? There doesn't appear to be much thought to that, only "I got mine."
Comment at 4/19/2010
Unions have outlived their usefulness.
Comment at 4/19/2010
I completely understand why anyone would want a pension. But, they make sense only IF they represent true deferred compensation (i.e. your current compensation is below market rates), OR if it is your money you put away today to be paid back to you later in the form of a pension. The sad, and immoral, reality today is that for public employees, this isn't the case. They are NOT underpaid TODAY, and their future pensions will be paid by OTHER people: us, and our children. It's unethical, immoral, and wrong.
Comment at 4/19/2010
I feel the union should do everything in its power to ensure that these promises are kept... like pay the pensions, out of their deep pockets. The unions should get their hands out of our pockets.
Comment at 4/19/2010
Why are public employees apparently considered so much more valuable than private sector folks? They are treated like royalty compared to the rest of us. Whose great idea was this, anyway?
Comment at 4/19/2010
It is time to bite the bullet --- we the taxpayers need representatives that use common sense with all of our over spending. The pension plans are one big area that needs to be adjusted by year's end. We all are making adjustments in the private sector and the public sector's time is now. Here is a basic script---Thank you for your service; by the way, retirement is 65/70 years of age. If you would like to take early retirement, great, there is a penalty to your pension plan. And, anyone who will be working from this date forward, your pension plan has been reduced by 30% because we need the funds to hire your replacements and keep our society running. I am sure your understand how important that is since you have been doing such an important job over the last 25-30 years. Thank you for supporting our society; isn't this why you became a public officer, fireman, sheriff, etc... We realize these jobs are life threatening --- my recommendation is to make sure the union is representing their members by making sure high life and disability insurance is obtained. We all have our talents to offer the world and have free choice to choose. So, let's wake up and be smart now before it is too late. It is no fun to drink corona by yourself anyway.
Comment at 4/20/2010
the state is legally obligated to pay these psensions by federal court (per KFI)- it may take drastic measures such as bankruptcy to get the unions to renegotiate. I too will have to work till I am 75+ - we need more responsible represenatives that understand that the Tax Payers, not the special interests, are watching and voting!
Comment at 4/20/2010
We made the law that is now breaking us. Make a law that reverses it. Unsustainable is exactly that. Stupid is as stupid does, and He is running for office again!
Comment at 4/21/2010
Let's see, William Lobdell writes bias articles. A CHP officer risks his life everyday so little Willy can write his articles. Hey William if you had a pair maybe you would have been a CHP officer.
Comment at 4/22/2010
Hello comment at 4-22-10; what part of "Unsustainable" are you too stupid to understand?
Comment at 4/25/2010
I also agree 100%. I live in the People's Reuublic of New York and the situation is the same here. This is the same in New Jersey, Connecticut, Massachusettes, in short, in every state with liberal/progressive leadership regardless of party. Every economic system at it's extremes makes slaves of the people. The progressives at the Federal level are in the process of making us economic slaves to the government by spending with brutal stupidity and by the increase in taxes we are about to face. We unfortunates living in the progressive states have an added burden put upon us by our state politicians. An additional consequence of the unrelenting taxing and spending is that the government constantly expands and employes more workers thereby creating an ever expanding voting block. If you examine the recently passed Obamacare bill and the proposed Financial Reform bill, they will expand the Federal employment rolls by tens of thousands. Democracy is the road to socialism and socialism creates no wealth.
Comment at 5/6/2010
Nah ..... just move away. It will be fun watching how money will be raised to pay the bills when the only remaining residents are Civil Servants (mainly active, as the retired will have ALSO moved on) and Welfare recipients.
Comment at 5/7/2010
What will be the tipping point where there aren't enough private employees to pay for the salaries and benefits of those currently in government as well as retiree benefits? Exactly who do these government employees think pay their salaries? Mickey Mouse? Obama? The tooth fairy?
Comment at 5/7/2010
welcome to Taxifornia...and the home of the heroes with huge pensions
Comment at 5/8/2010
I live here in Oregon. I have two neighbors who were state civil servants. They both retired about 5 years ago (age 55) at full pay. I overheard one say to the other how he doesn't understand why those in the private sector are so upset because we chose poorly. It's because we can't vote for our own raises, pension benefits, healthcare,etc. If public employees and their spouses, children, parents, etc. make up 51% of the population then we are truly slaves to their whims and demands. Time to move to a more intelligent state.
Comment at 5/9/2010
Absolutely atrocious! It must stop! I am 68 years old and I can't retire yet but they keep taxing the life out of me so they can retire in luxury. It's time to put a stop to it no matter what the law says. Everyone else gets laid off and has to make do. Well, to bad, they should to!
Comment at 5/10/2010
In 1993, I retired at age 55 from 25 years as a Colorado school techer. My retirement was 40 percent of my last 3 years of teaching. I felt forunate, but when I read of the pensions now that are more than people made while working, i feel spmething is going to have to give. The public will only put up with so much. It's time for the unions to back off their demands or this whole country might go down the drain and all of our pensions will probablly go with it.
Comment at 5/10/2010
I think the author is lying. To get a 90 percent pension at age 50 would require you to work for the State of CA for 45 years, i.e. STARTING AT AGE 5. And not even that because the accrual rate is 2% a year AT 55, not 50.
Comment at 5/10/2010
P.S. the author also doesn't mention that public employees forfeit their Social Security, even though they've paid into the system. The pension is NOT a 401K, it's in lieu of Social Security.
Comment at 5/10/2010
Love that comment about giving up social security.Why don't we compare paltry SS benefits to govt pensions. Retired folks going back to work at Walmart because they can't pay property taxes that go to pay these thieves that collect govt pensions. Pathetic
Comment at 5/11/2010
I most certainly agree with this assessment. The sad part is other states are in the same boat. Like you I pretty much had to kiss any dreams of retiring in my mid 50's good-bye when I lost my job and home. 401K? Ha! I don't have one! At 50 I'm looking at having to start over, because my lay off cost me almost everything. I don't have a pot to pee in nor the window to throw it out of any more. These fat cats stand to benefit from hard working tax payer dollars while we (the tax payers), suffer from lost or cut incomes and unemployment. The one thing I am OK with is cops and firefighters getting pensions, because they put their lives on the line every day for people they don't know. They have dangerous jobs and don't get paid well while on the job. Their starting salaries are an insult as far as I'm concerned. So if they are lucky enough to live to retire I say let's give them that much. As for everyone else I think they deserve to have their pensions cut down, or eliminated especially the medical portion. Private sector folks don't have it that great now, and most likely never will again. Keep expressing those opinions! I love it!
Comment at 5/16/2010
I am a 50 year old CHP officer with 20 years of service. We DO NOT get 90% of our salary at age 50. If I retired today, I would a little over half of my monthly salary and pay State and Federal taxes just like everyone else. We get no special treatment on our pension, that we pay into each month. You are correct. An officer can get a 90% pension payment, AFTER 30 years of service. How do such dumb rumors get taken as fact. Don't believe everything you read. The salary of each employee is public knowledge, check for yourself. Some officers work overtime to add a little extra pay, but that is NOT included on the pension pay. In addition, the officers that work overtime have to do so on their days off. We don't expect any "special" pension pay. Only what we have paid into PERS. Also, on average, police officers die within 5-6 years after retirement, from various health issues that accumulate over years of service. Yes, service to the citizens of the State of California. There are no "golden handshakes" or any extra monetary add ons at retirement. I hope that sets the record straight. Check it out for yourself, if you don't trust what I have to day.
Comment at 5/17/2010
Pro or con,The facts are that the state has an unfunded pension liability of $500 billion, and OC $1 billion unfunded. In addtion, Ca. has a $20 billion defecit. The payouts can not be sustained and changes must be made immediately. Step 1. All public safety pensions apply only to those working in the field; Step 2. all public employees are "at will" eployees subject to termination; Step 3. All current probationary employees and new hires retirement plans will be defined contribution plan(no state guarantees);Step 4. The public entity retirement contribution shall not exceed 7.5%/ of employee's salary and the contribution is paid only if the public entity has a surplus;Step 6. minimum retirement age at 62;Step 7. No medical retirements allowed. The alternative is state and local bankruptcy.
Comment at 5/24/2010
To the HWY Patrol officer who says CHP's dont receive golden parachute pensions: who are THESE people then? http://database.californiapensionreform.com/database.asp?vtsearchname=&vtsearchemploy=ca+hwy+patrol&vtquery=1&vttable=calpers
Comment at 5/28/2010
Well, those public employees were radically underpaid through the 60's and 70's and the private sector employees were getting wealthy, 10-30% bonuses, airflo chairs, foosball tables, expense accounts...while the plodding tortoise public sector employees were laughed at. Who's laughing now? Payback is a beatch!
Comment at 6/1/2010
How about a ballot initiative to institute a 80 to 100% incremental state tax on any public pension dollars that exceed the state's median income? The courts may have ruled that pensions must be paid, but I don't believe the courts could overturn such a tax.
Comment at 6/7/2010
To the government workers that complain that they do not get a 100% pension and retire at 50 are in the wrong union. You can also increase your pension by packing on as much overtime as possible during your last year of service. Some union members are complaining that their medical insurance has increased to $20 a month this year!
Comment at 6/8/2010
I believe it irresponsible on blaming the total debt on pensions. There are many issues both in the private and public sector that has caused the deficit to grow. I am talking about bad loans, public assistance reform, Medi-Cal, Calworks, Education, etc. Although pensions contribute to the overal baggage the tax payer assumes, I would also like to inform you that public employees pay a significant contribution of their checks toward their pensions. Inother words they are not 100% funded by the government nor taxpayer. I understand your frustration in your current situation and all I can hope is that your situation improves. However why use your anger toward against benefits that are healthy for its people and employees. I would like more info and facts and less rhetoric and emotion. Good luck to all and may Americans, Californians stick together.
Comment at 6/9/2010
I agree 100% with 04/22/2010 comment...way to go! Tell it like it is.
Comment at 6/10/2010
When things are good all these people crying do not say a word due to the fact that the private sector is paid much more then government employees. Nobody mentions that government employees pay into there retirerment.We made the choice to work for the government and other people made fun of me cause we were under paid.Now look at you.Instead of pointing fingers and trying to take from the people that made the right choice and work hard for there future to retire at an earlyer age then most. Work on making things better for yourself by making the right choices and not blaming others for your mistakes.
Comment at 6/10/2010
I am annoyed with the misconceptions I read targeting all public employees in general. I am a public employee too and we pay a significant portion into our retirement system that is based on several factors. The salary we make is not comparable to private industry as well. Given these circumstances, I don't think any of us can make 100% salary at age 50. So, why don't you target those category of people or agencies who make that kind of money - such as fire and police personnel and people who double dip (get pension from two different agencies, etc.) and not target people like us who sincerely try to make a decent living! Thank you.
Comment at 6/10/2010
It is the unions and the politicians against the rest of us. I am ballistic.
Comment at 6/10/2010
I am LIVID with what is going on. I have been following this for several years. It's time for the non-union private sector folk to UNITE (pun intended) and stand up against labor unions in our governments. - what are they doing there in the first place?!
Comment at 6/11/2010
Dear Public Employees who have posted your feedback on this blog: Please consider the fact that private sector employees lost pensions and 401k matches from most companies a LONG time ago (far prior to this economic recession). CONTRARY to popular belief, the private sector pays far LESS than the public sector. I am an executive and know what people make - at my current company average employees are paid around $55,000 per year and they DO NOT get overtime. They receive 2 weeks of paid vacation each year until they have worked at our company for FIVE years, when they move up to 3 weeks of vacation. The company pays 90% of medical and dental benefits and nothing for dependents. There is NO 401k match. There is NO pension. There are voluntary vision benefits (if the employee wishes to pay for this). We get 6 sick days per year (this is the most that I've ever gotten - have been in the public sector for 15 years - most companies pay between 2 and 5 days of sick time per year) - we get 9 holidays per year and no personal time. THAT's life in the Public Sector. As for your comments about career choices... The thing is that I am your boss - my Tax dollars contribute to your compensation and benefits and pension... however - you got a raise without my approval. This is called Taxation without Representation since the corrupt Union officials held our elected politicians hostage to bow down to these ridiculous contracts if they wanted to stay in office. the time of the UNIONized government is OVER. WE ARE FIERCE - and by the way, Private sector employees work HARDER and are going to win this battle.
Comment at 6/11/2010
As usual, nice writing, Bill. And I agree.
Comment at 6/11/2010
I blame Robert Kiyosaki and his book "Rich Dad, Poor Dad". People unquestioningly believed his claims about public sector pensioners living in poverty, so they thought it would be ok to raise the pensions. Someone should write a new book called "Poor Dad, Rich Dad".
Comment at 6/14/2010
If you work 40 years for the same company... What would you want to retire with? Most State workers - dont work more than 20 years and thier retirement is based on thier age factor. I have work for 10 years for the state and if I retire in November I would make $1,000 a month retirement---could you live on that. I had to jump through hoops to get my job, plus college (paid for by my self) and I earn less than what I made before working for the state and college. If you want the retirement you jump through hoops and take reduction in pay and work 20 (for 50%) 40 years (for 100%). It took me 20 years to get into the state service and 10 state interview/test.
Comment at 6/15/2010
It is clear that our current pension system is unsustainable.Perhaps instead of rehiring our pensioners at different jobs, they should be offered volunteer positions. They must do something with their time for their remaining 40 years.
Comment at 6/18/2010
You have some very fortunate friends; More than half Calpers retirees receive less than $1,800 per month, and they do NOT retire at 50. The "half trillion dollar" cost is NOT fact. It is one opinion, assuming the most conservative return on investment. Calpers has succesfully managed retirements for 70 years with more reasonable returns. The total the state pays into the retirement system is about 2 1/2% of the total budget. Even with the improved pensions from 1999, The states retirement costs are now a LOWER percentage of payroll than they were in the early 1980s. Statements like "unsustainable", "LAVISH pensions", "Cadillac pensions" are inflamatory and, well, WRONG.
Comment at 6/23/2010
You whiners! Boo hoo, my public employee friend gets to retire before me! Boo hoo hoo! Listen whiners, there is plenty of opportunity out there but you don't have the attitude to capitalize on it! My neighbor just sold his business and retired at 45 (in this so-called down economy). He's embarking on a new venture, but he doesn't have to. Another neighbor retired at 50 from a private tax law firm and has no pension, but he lived modestly and saved what he was supposed to. He is comfortable and enjoying his retirement (makes more than when he was working). Do I like that a public employee with no degree makes more in retirement than I do? No, but I know I made choices all my life that put me where I am. So, I don't know what poor choices you made, but it's clear that you want to blame someone else for your life that you chose.
Comment at 6/23/2010
Did you know that most employees put into the retirement and has it as a package deal. They are not qualified for social security..as the private sector you have the ablity to control your retirement and the employees have a set structure.
Comment at 6/28/2010
Cut all pensions to a cap of no more than 100K per year and allow no COLA's once they are cut to 100K. Make employees pay their CALPERS which is about 9%. If safety employees want 3% @50 make them contribute 15% to pers!
Comment at 8/7/2010
I am about to retire in California after 38 years. My pension will be 68k per year which I feel is fine since my debts are paid off. I am pissed at the over 100K pensioners who cry that they don't have enough to cover their expenses because they lived beyond their means. I say cap pensions at 80K! It would save billions!
Comment at 8/7/2010