On October 23, 2014, Melody Petersen and Mare Lifsher write in the Los Angeles Times:
Directing traffic is part of a police officer’s job, and in the city of Fountain Valley, keeping cars moving comes with a $145 monthly bonus — and a bigger pension.
Fountain Valley officers can also pump up their pensions by working with police dogs or mentoring schoolchildren. Those who stay in shape get as much as $195 more each month.
All these perks boost officers’ salaries and add thousands of dollars to taxpayer-funded pensions for years to come.
The California Public Employees’ Retirement System made these higher pensions possible. The nation’s biggest public pension fund voted in August to adopt a list of 99 bonuses, ensuring that newly hired California public workers would receive the same pension sweeteners as veteran employees.
The long-term cost of pensions calculated with bonuses is billions of dollars more than with base pay only. But the exact price tag remains a mystery. The labor-dominated CalPERS board voted without estimating the potential tab.
The vote raised alarms on Wall Street, where analysts have warned about the skyrocketing costs. With $300 billion in investments, CalPERS estimates it still needs an additional $100 billion from taxpayers to deliver on its promised pensions to 1.7 million public workers and retirees. That amount would be enough to operate the 23-campus California State University system for 16 years.
Gov. Jerry Brown, who pushed through a 2012 law to stop workers from using questionable perks to unjustly inflate their retirement pay, wants the action reversed. He vowed to take a personal role in the fight and has asked two state agencies to scrutinize whether the 99 pension sweeteners are legal and appropriate.
All new state employees, as well as those at most cities, counties and other local agencies across California, will now benefit from the list.
Among the beneficiaries are librarians who help the public find books, secretaries who take dictation, groundskeepers who repair sprinklers and school workers who supervise recess.
“Ninety-nine, are you kidding me?” said Dave Elder, former chair of the Assembly’s public employees committee. “It’s almost impossible to police.”
CalPERS repeatedly told The Times it didn’t know how much the bonuses were adding to the cost of worker pensions even though cities submit detailed pay and bonus information that is used to calculate retirement pay.
Even a small bump in salary can cause a public agency’s pension costs to soar. An increase of $7,850 to a $100,000 salary can amount to an additional $118,000 in retirement if the employee lived to 80, according to an analysis by the San Diego Taxpayers Assn., a watchdog group that scrutinizes city finances.
Fitch, a Wall Street rating firm that weighs in on the financial health of governments, warned that the pension fund’s vote would burden cash-strapped cities.
“Cities and taxpayers will undeniably face higher costs,” said Fitch analyst Stephen Walsh. “Pensions are taking a bigger share of the pie, leaving less money for core services.”
Governments sent CalPERS more than $8 billion last year, an amount that has quadrupled in the last 10 years.
And the cost will continue to rise. Long Beach expects its payments to CalPERS to increase 87%, or $35 million, in the next six years. Finding that money will be “very painful,” its staff recently told the City Council.
Sacramento had been expecting pension costs to rise by millions of dollars when CalPERS asked cities to start paying even more because retirees are living longer. Leyne Milstein, the city’s finance director, estimated the newest jump adds up to an additional $12 million annually — the equivalent of 34 police officers, 30 firefighters and 38 other employees.
At The Times’ request, CalPERS analyzed salary and bonus costs for Fountain Valley — one of hundreds of cities and public agencies that award pension-boosting bonuses to workers.
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.
Detective Henry Hsu, president of the Fountain Valley Police Officers’ Assn., defended the bonuses, which he said “are intended to help officers become better officers.”
The money compensates officers for extra hours or hazards they take on in the special assignments, he said.
Fountain Valley City Manager Bob Hall said that most of the premiums are fixed monthly sums, unlike those at many other cities where they are a percentage of base pay — causing them to rise in value with every salary increase.
“We’ve tried to manage the cost as best we can,” Hall said.
CalPERS executives said they don’t understand the anger caused by the board’s vote. 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. The reform law is still estimated to save taxpayers $42 billion to $55 billion over the next 30 years, he said.
“It’s far-stretched to say this is a rollback of reform,” Pacheco said. “We implement the law as it was written, not how others wish it were written.”
Some public pension funds that operate independently from CalPERS disagreed with its interpretation. Fund officials in Stanislaus and Contra Costa counties decided not to include bonuses when calculating pensions for new employees.
“Our board came to the conclusion that base pay is what the Legislature and the governor had intended,” said Rick Santos, executive director of the Stanislaus County Employees’ Retirement Assn.
Over the years, unions have secured better retirement packages through negotiations with public agencies and by expanding their influence inside CalPERS.
In an extraordinary show of union power, workers persuaded voters in 1992 to amend the state constitution, requiring the pension board to place more emphasis on providing benefits to workers and less on the cost to taxpayers.
In 1993, CalPERS successfully sponsored a bill that gave it the authority to determine what bonuses could be counted toward pensions. That same year, CalPERS created a list spelling out dozens of possible pension sweeteners.
Since then, those bonuses have been used to boost pensions. The 2012 reform law was silent about whether new employees would get them too.
Seven people on the 13-seat board are union members or were elected by government workers who receive benefits from CalPERS. All but one of them voted to add the bonus list into the 2012 reform law.
Union-backed board members weren’t the only ones who voted for the bonuses. State Treasurer Bill Lockyer and state Controller John Chiang both complained about the pension boosters but said they had little choice but to approve them.
“Many of the items on this premium pay list are absolutely objectionable,” said Tom Dresslar, a spokesman for Lockyer. But frustration, he said, “needs to be directed to the proper place, which is the public agencies that negotiated the perks through collective bargaining agreements.”
George Diehr was the only board member elected by workers who voted against the bonuses. A recently retired Cal State San Marcos professor, Diehr said many of the perks seemed silly and archaic.
One thing is clear: Pension costs will keep rising.
San Jose Mayor Chuck Reed, who is fighting to transform the state’s public pension program, said CalPERS is continuing to “work against any kind of reform.”
“They’ve set out on a course to protect the existing system and level of benefits,” Reed said. “Meanwhile, costs are going up, the problem has not gone away, and it keeps getting worse.”
One of the few job opportunities remaining with a secure pension are government jobs financed with taxpayer obligations. Of course, for the majority of Americans a pension is not a reality for them to rely on in retirement.
The plain truth is that more than four in five older Americans expect to keep working during their latter years, a sign that traditional retirement is out of reach for vast swaths of society. According to a new survey poll conducted by the Associated Press-NORC Center for Public Affairs Research, among Americans ages 50 and older who currently have jobs, 82 percent expect to work in some form during retirement.
In other words, “retirement” is increasingly becoming a misnomer.
For those who have been dependent on employment and/or welfare, the problem is that financially sustainable retirement is and will no longer be a reality. Even with Social Security, which is funded through payroll taxes called the Federal Insurance Contributions Act tax (FICA) and/or Self Employed Contributions Act Tax, (SECA), one must have had a job to be eligible for the entitlement––and the amount of Social Security is based on the income level generated from one’s employment record of payroll tax contributions.
Employer-provided pensions continue to decrease and personal savings is not the norm among the vast majority of American households who must spend virtually every earned dollar on living expenses. While increasingly individuals are finding it necessary to continue working in retirement to supplement their income, most older Americans discontinue full-time career work and struggle to meet obligations with minimum-pay part- and full-time jobs. A proportion of retirees also receive income from welfare programs, such as Supplemental Security Income and other life-support services funded through tax extraction and government debt.
This perspective should serve as the “reality” from which to explore prospects for effectively dealing with eroding retirement security.
The American consumer is being put into an impossible situation of being asked to consume more to drive the economy and reduce saving, and at the same time are being told they must reduce consumption dramatically in order to accumulate sufficient savings for retirement.
Of course, the whole problem would go away if we financed both retirement and wealth-creating, income-producing physical productive capital needs out of “future savings,” thereby increasing the capacity to consume and support the economy while simultaneously building financial security for every American citizen.
A far better and productive approach would be to create a new way for working and non-working Americans to start their own retirement savings: MyCHA. CHA stands for Capital Homestead Account. It would be a super-IRA or asset tax shelter for citizens. The Treasury should start creating an asset-backed currency that will enable every child, woman and man to establish a CHA at their local bank to acquire a growing dividend-bearing stock portfolio comprised of newly-issued stock representative of viable American growth corporations to supplement their incomes from work and all other sources of income.
We can create new asset-backed money for investment through the existing but dormant Section 13(2) rediscount mechanism of each of the 12 regional Federal Reserve banks that would be backed by “future savings” (that is, future profits from higher levels of marketable goods, products, and services).
The CHA would function as a savings and income account that effectively would build a nest egg over time, using interest-free, insured capital credit loans. A CHA would be offered to EVERY American, whether employed or not. Of course, those employed may also have additional opportunities to acquire personal ownership in their companies using an Employee Stock Ownership Plan (ESOP) trust financial mechanism.
The CHA would process an equal allocation of productive credit to EVERY citizen exclusively for purchasing full-dividend payout shares in companies needing funds for growing the economy and private sector jobs for local, national and global markets. The shares would be purchased on credit wholly backed by projected “future savings” in the form of new productive capital assets as well as the future marketable products and services produced by the newly added technology, renewable energy systems, plant, rentable space and infrastructure added to the economy. Risk of default on each stock acquisition interest-free loan would be covered by private sector capital credit risk insurance and reinsurance, but would not require citizens to reduce their funds for consumption to purchase shares. There would be no prerequisite requirement to qualify for an annual set capital credit loan other than American citizenship.
This idea to stimulate economic growth and provide retirement security for EVERY American is based on the premise that what is needed is for the system to facilitate spreading the ownership of productive capital more broadly as the economy grows with full payout of dividend earnings, without taking anything away from the 1 to 10 percent who now own 50 to 90 percent of the corporate productive capital wealth assets. In doing so, the ownership pie would desirably get much bigger and their percentage of the total ownership would decrease, as ownership gets broader and broader.
This would benefit the traditionally disenfranchised poor and working and middle class, who are propertyless in terms of owning productive capital assets. It would also result is tremendous economic growth, which would benefit everyone including the already wealthy ownership class, and create opportunities for real jobs, not make-work as an expanded economy is built that can support general affluence for EVERY American citizen. Thus, as productive capital income is distributed more broadly and the demand for products and services is distributed more broadly from the earnings of capital, the result would be the sustentation of consumer demand, which will promote economic growth. That also means that over time, EVERY child, woman and man could accumulate a diversified portfolio of wealth-creating, income-producing productive capital assets to provide economic security in retirement and not be dependent on having to work during retirement or rely on government-assisted welfare.
One might ask how we failed to grasp the significance of productive capital’s input and the necessity for broad private sector individual ownership? Unfortunately, ever since the 1946 passage of the Full Employment Act, economists and politicians formulating national economic policy have beguiled us into believing that economic power is democratically distributed if we have full employment––thus the political focus on job creation and redistribution of wealth rather than on full production and broader productive capital ownership accumulation. This is manifested in the belief that labor work is the ONLY way to participate in production and earn income. Yet, the wealthy ownership class knows that this notion is idiotic.
In real productive terms, productivity gains are the result of tectonic shifts in the technologies of production, which consequently eliminates the need for human labor, destroys jobs, and devalues the worth of labor.
One should ask what form would the structural reforms take. Employment in this new enlightened age would start at the time one enters the economic world as a labor worker, to become increasingly a productive capital owner, and at some point to retire as a labor worker and continue to participate in production and to earn income as a productive capital asset owner until the day you die. As a substitute for inheritance and gift taxes, a transfer tax would be imposed on the recipients whose asset holdings exceeded $1 million. This would encourage those owning concentrations of productive capital assets (effectively the 1 to 10 percent) to spread out their monopoly-sized estates to all members of their family, friends, servants and workers who helped create their fortunes, teachers, health workers, police, other public servants, military veterans, artists, the poor and the disabled.
Other stipulations for the structural reform would entail tax policy reform to incentivize corporations to pay out all profits to their owners as taxable personal incomes to avoid paying stiff corporate income taxes and to finance their growth by issuing new full-dividend payout shares for broad-based individualized employee and citizen ownership with full-voting rights.
We need to encourage the insurance industry to expand their product lines to market Capital Credit Insurance to cover the risk of default for banks making loans to Capital Homesteaders under the proposed Capital Homestead Act. Under the provisions of the Act, risk of default on each stock acquisition loan would be covered by private sector capital credit risk insurance and reinsurance issued by a new government agency (ala the Federal Housing Administration concept), but would not require citizens to reduce their funds for consumption to purchase shares.
The end result is that ALL American citizens would become empowered as owners to meet their own consumption needs and government would become more dependent on economically independent citizens, thus reversing our country’s trend where all citizens are becoming more dependent for their economic well-being on the “state,” our only legitimate social monopoly.
Implementing the Capital Homestead Act would significantly empower ALL Americans to accumulate over time a viable, diversified ownership portfolio in our nation’s growth companies and create a truly unique, global-leading just and environmentally responsible Ownership Society that fosters personalism, creativity and innovation. Embarking on a new path to prosperity, opportunity and economic justice will expand growth of our market economy in ways that democratize future ownership opportunities, while building a future economy that can support general affluence for EVERY American.
In conclusion, both President Obama’s MyRA and Senator Harkin’s USA programs would be completely unnecessary if we had Capital Homesteading. President Obama, Senator Harkin and other elected representatives should instead advocate for the passage of the Capital Homestead Act.
See two references to the proposed Capital Homestead Act at http://www.cesj.org/homestead/index.htm and http://www.cesj.org/homestead/summary-cha.htm.
For more on how to accomplish such structural reform, see “Financing Economic Growth With ‘FUTURE SAVINGS’: Solutions To Protect America From Economic Decline” at NationOfChange.org http://www.nationofchange.org/financing-future-economic-growth-future-savings-solutions-protect-america-economic-decline-137450624 and “The Income Solution To Slow Private Sector Job Growth” at http://www.nationofchange.org/income-solution-slow-private-sector-job-growth-1378041490.
http://www.latimes.com/business/la-fi-pension-fight-20141023-story.html#page=2
