Washington lawmakers propose legislation for state workers getting paid twice by taxpayers

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Politicians want to put an end to the loophole that allows state employees to collect both a pension and a paycheck, a highly-charged topic nationwide on pension reform agendas.

A bill introduced Tuesday aims to end the state’s “retire-rehire” policy, by which state employees can “double-dip” and earn both a salary and a pension by going back to work shortly after retirement. The bill is sponsored by Democratic Senate Majority Leader Lisa Brown of Spokane and Republican Senate Minority Leader Mike Hewitt of Walla Walla.

Hewitt says that given the budget crisis and the underfunding of state pension plans, Washington cannot afford to pay these employees twice.

Gov. Chris Gregoire and other lawmakers have proposed closing the loophole.

An investigation by The Seattle Times last year found that 2,000 state employees were collecting both a pension and salary, costing taxpayers about $85 million yearly.

Hewitt’s bill will be heard in the Senate Ways and Means committee.

The Associated Press

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Oakland officials bracing for pension plan funding disaster

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In 1997, then-city officials in Oakland, California had a great idea that would take them off the hook for 15 years of pension contributions for some of its public-employee pension plans. City leaders issued a 15-year bond at a low interest rate, and invested the proceeds to potentially earn a higher rate, using the earnings to pay annual fund contributions.

Now sources say, the investments were poorly managed, and only earned an average of 4 percent annually, instead of the 8 percent that officials expected. Instead of helping its finances, the city owes $46 million that comes due on July 1.

An actuarial study commissioned by City Auditor Courtney Ruby determined that the city lost more than $250 million by issuing the bonds rather than paying the contributions as they became due.

To make matters worse, in addition to the pension bond disaster, the city is also facing a $40 million deficit on its $400 million general fund budget.

While some officials, including Councilman and finance chair Ignacio De La Fuente and City Attorney John Russo, want to rein in spending to make ends meet, others in City Hall prefer to simply issue another bond, and push the problem off for another five years.

According to the San Francisco Chronicle:

Issuing a new pension bond with another five-year holiday could have severe consequences for the future, according to Ruby.

Even if the city gets a 7 percent return on pension fund investments during a five-year holiday, the city would have to pay out $42 million to $28 million a year from the General Fund between 2017 and 2023, according to Ruby’s report. In the last years of paying back the pension bond’s obligations from 2024 to 2026 – half a century after the last eligible employee would have been hired – the city would have to pay more than $150 million per year from the General Fund.

The bonds are tied to a specific city pension plan for police and firefighters with unusually generous provisions – even by today’s standards. It provides that a retiree’s benefits are not tied to their salary when they retired, but to a salary as if they were retiring today.

For example, a police captain who retired in 1975 would receive 68 percent of the pay of a currently employed police captain in 2011- holiday pay and shift adjustments included. Currently, 1125 retirees and beneficiaries are participants in the plan.

Mayor Jean Quan is said to be favoring a plan that would have the city pay only $5 million per year into the plan for the next five years, and then increase payments when its finances are in better shape. However, Russo thinks the figure should be $20 million per year.

“People say, we should be paying this when times are better, but the problem is that when times are better, nobody pays this down,” he said. “If they roll this over again, there is no scenario I can see where they’ll be able to pay this back in 2024.”

San Francisco Chronicle

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Pension perk granted by California legislature, now under fire

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A little-know pension benefit used by tens of thousands of state workers annually, has bubbled up to the top of a list of pension abuses under fire for contributing to a skyrocketing unfunded pension liability.

The benefit, called “air time” allows workers to purchase up to five additional years of fictitious work time, in order to retire early, or receive a larger retirement benefits as if they had worked for a longer period.

The employees pay a fee to purchase the additional years of service, although critics say the amount isn’t enough, especially when a pension fund’s investment earnings are lower than projected – an increasingly common occurrence.

Last September, officials discovered that state actuaries priced the benefit so low, they increased buy-in payments by 17 percent to 38 percent, depending on the job classification.

The Los Angeles Times reports that benefit was bestowed on all state employees in 2003 by the legislature, which was intending to help its own staffers who took time off to run their bosses election campaigns. After then-Gov. Gray Davis vetoed the bill in 2002, lawmakers pushed through legislation the following year, this time making all state workers eligible for the perk.

The unusual benefit does not exist in private businesses with their employees’ retirement plans. Instead, those wishing to do something similar must purchase an annuity, which pays a return of 3 percent, less than half as much as the 7 to 8 percent guaranteed air time benefit provides.

Pension benefits are determined by multiplying a small percentage – usually 1.2 to 3 percent – times the number of years that an employee has worked and applying that percentage against the final year’s income. If an employee’s deal provided for a 2 percent factor, and worked 30 years in government, then a $100,000 final salary would yield a $60,000 annual pension benefit for life.

In an example given by the Times, a 55-year old employee who purchased 5 years of air time for $124,000 would get another $9,840 for life, and break even on the investment at age 67. According to actuarial tables, that employee could expect to live to 83 years if a male, and 86 if a female.

One investment advisor, Scott Hanson of Sacramento-based Hanson McClain, said he almost always advises government workers to purchase the extra years. Even after the recent price increase, “It’s still a tremendous benefit,” he said.

Los Angeles Times

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New Jersey Republicans advance pension reform initiatives

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A plan supported by Gov. Chris Christie to reform the state’s troubled public pension system was introduced on Monday in the New Jersey House by Republican Assemblymen Declan O’Scanlon and Gary Chiusano, with Sen. Joseph Pennacchio planning to introduce the same measures in the Senate.

“The system in its present form is unworkable which is a major concern for every resident in the state,” O’Scanlon said. “This legislation will provide comprehensive and substantive improvements to save the system and protect taxpayers. If continue on our present course, public employees will lose their pensions and beleaguered taxpayers will face crushing tax increases.”

“There are several major public policies which need to be reformed in order to make New Jersey more affordable, and the public pension program is one of them,” Chiusano said. “The plan is grossly underfunded and will collapse without far-reaching systemic improvements. By enacting these measures, we will stabilize the state’s pension contribution at a manageable level and ensure its long-term viability. These reforms will ease the burden on taxpayers and strengthen the pension system for our public employees.”

If no changes are made to the current system, O’Scanlon and Chiusana said that the current unfunded liability of $54 billion will balloon to over $180 billion by 2041.

Under the sweeping proposal, future employees would be mostly affected by the 139-page bill.  The highlights include:

  • The retirement age would be raised to 65 for most employees, reflecting an increase in life expectancy. To retire early, workers would be required to have worked 30 years, instead of the current 25.
  • Workers would be required to contribute 8.5 percent of their salaries towards retirement.
  • Pensions would be calculated on employees’ earnings from their five highest-paid years, up from the current three.
  • Firefighters and police would have the maximum pension benefit reduced from 70 percent of their current salaries to 65 percent.
  • Cost of living increases would be eliminated.
  • The 9 percent pension increase given to workers in 2001 would be eliminated for current and future employees.

Two weeks ago, Democrat Senate President Stephen Sweeney proposed a bill that stopped short of the Republican’s bill.

Sweeney’s bill would replace the present oversight boards of the public employees, teachers, police and firefighter pension systems with joint boards of management and labor organizations. The boards would oversee the management of the pension funds and have the power to adjust annual contributions and benefits based on the investment performance of the funds.

The plan would require workers to make additional pension contributions if the wanted to take advantage of the 9 percent pension increase given in 2001.

Workers with fewer than five years of employment would not receive cost-of-living adjustments, unless the board found some way to pay for it.

Sweeney said “This legislation will remove politics from the process and establish a private-sector model for the pension system. This will be comprehensive reform that will ensure that those who benefit from the pension fund are paying their fair share without adding any additional burden to already overtaxed taxpayers in New Jersey.”

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Top cops in S.F. cash out with big retirement paydays

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On Monday, the San Francisco Chronicle published some eye-opening salaries paid to law enforcement chiefs on their way to retirement.

In 2009, retiring S.F. Police Chief Heather Fong, age 52 at the time, collected $528,595 in her final year, which included $303,653 for unused vacation, sick and comp time. She will receive an annual pension of $229,500 for the rest of her life.

Former Deputy Chief Charles Keohane, who also retired in 2009, collected $516, 118 in his final year, which included $325,503 for unused vacation, sick and comp time.

Retiring Commander and S.F Assistant Police Chief Morris Tabak took home $425,558 in his final year, which included $173,703 in unused vacation, sick and comp time.

Three Bay Area Rapid Transit senior officers also did well by retiring in 2009 and 2010. Commander Travis Gibson earned a total of $355,000, Commander Maria White earned a total of $282,453 and Sgt. Mark Macaulay took home $286,152, including $140,908 in overtime. Macaulay is still employed on the force, and may pop up next year again as a highly-paid member of the BART police department.

All the retiring police officers also will receive six-figure pensions.

The San Francisco Chronicle

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Bloomberg proposes changes to NYC pension system to save city from financial disaster

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New York’s Mayor Michael R. Bloomberg announced a proposal on Wednesday that would end some of the city’s most generous pension provisions for its workers and save billions of dollars in the process. He said unless there is aggressive pension reform, the current system will soon bankrupt the city.

Bloomberg, who until recently, was considered an ally of the unions, is now in the position of drawing their ire.

Vowing to save the city from bankruptcy, NYC Mayor Michael R. Bloomberg proposed controversial pension reform.

Some of the proposed changes include mandatory 10 years of employment before new hires are eligible for benefits– double the current number of years, and require them to be at least 65 years old before receiving benefits. Currently, workers can begin drawing benefits as early as age 57, and many cops and fire fighters receive full benefits after 20 years, no matter how old they are.

Another proposed change would prevent employees from being able to use overtime wages in determining the base for their retirement pay, a controversial and widespread abuse known as “pension spiking.” City managers routinely allow retiring workers to load up on overtime in their final year before retirement, often increasing their pension payments by over 50 percent.

All new city employees would be required to pay more of their own monies into their retirement accounts, and some existing employees, mostly police and firefighters would lose some existing benefits, namely a $12,000 annual stipend they receive in addition to their regular pension.

“This reflects the dire fiscal circumstances the city faces, the devastating impact of increasing pension costs and the desperate need for aggressive reforms,” said Marc La Vorgna, a mayoral spokesman told the New York Times.

The current move is an about-face for Bloomberg, who in the past has used generous pension benefits as a way to keep the city’s 300,000 workers happy and prevent them from striking at times of contract negotiations. As recently as 2008, Bloomberg helped push through a new teachers union contract that included a pension provision allowing them to retire five years earlier than before, with full retirement benefits.

Later that same year, as the financial crisis was in full swing and wages were stagnant throughout the country, Bloomberg gave the city’s largest municipal union back-to-back 4 percent raises, without any concessions on pension benefits.

If successful, the changes could immediately save the city at least $200 million per year, although far larger savings, in the billions of dollars would be further down the road.

One union official, angry over the proposals, called Bloomberg a “dictator.” Harry Nespoli, chairman of the Municipal Labor Committee, an umbrella group of unions, said that Bloomberg had “has set back labor relations 40 years.” Nespoli added “We’re fed up with this. He’s going to have a battle. We’re just not going to roll over.”

Teachers union chief, Michael Mulgrew, called the mayor “insane,” and said that Bloomberg “has just decided, I’m going to attack, attack, attack everybody.”

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Illinois school superintendents get rich on pension benefits by fleeing state

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Retired school superintendents are making a mad dash for the border, that is, the state border, in order to effectively double up on their annual compensation.

And that’s exactly what’s happening in Illinois, and likely other states, according to an investigative report in the Chicago Tribune. In fact, while educators are moving out of state to get around pension payment rules, superintendents from other states are moving into Illinois, presumably to fill in for the jobs left by those taking advantage of the loophole.

Illinois state laws are in place to prevent its public school superintendents from retiring and triggering outsized pensions, and then taking another superintendent job to collect two checks from the state. Unfortunately, when politicians crafted the law, they forgot to limit retirees’ pensions if a superintendant took a job across state lines.

In many cases, those moving into Illinois are also retirees, hiding from their state while cashing pension checks and continuing to earn large salaries.

Even though the state’s pension system is in serious financial straits, there’s nothing much that can be done under existing rules, since it’s all legal.

“We have allowed a system to develop that is grossly underfunded and that has very generous benefits,” said Laurence Msall, president of Chicago’s Civic Federation, a nonprofit government research organization. “To draw a pension from the state … and then immediately go get another job as a superintendent or in another teaching capacity — they’re really not retiring.”

Some examples found by Tribune investigators include:

  • Retired superintendent of New Trier Township High School District Hank Bangser, collects a $261,681 state pension, while working as a school superintendent in Southern California’s Ojai Unified School District making $170,000. His total annual compensation: $431,681.
  • Retired Wheaton Superintendent Gary Catalani receives a $237,195 Illinois state pension while earning another $195,000 from the Scottsdale, Arizona school district. His total annual compensation: $432,195.
  • Retired South Cook superintendent Eric King receives a $166,608 Illinois state pension and earns another $168,343 salary as the superintendent of the Muncie, Indiana school district, for a total of $334,951.
  • Retired East Maine Superintendent Kathleen Williams receives a $177,711 Illinois state pension, and earns another $156,000 in Wausau, Wisconsin. Her total compensation: $333,711.
  • Retired Superintendent Rebecca van der Bogert collects a $169,050 Illinois state pension, another $21,974 from Massachusetts, and currently works in Florida as the head of the Palm Beach Day Academy.
  • Retired superintendent of the Oak Park and River Forest Districts Attila Weniger, receives an Illinois state pension of $180,302 while earning another $149,500 as the superintendent of the Stevens Point Area Public Schools District in Wisconsin, for a total of $329,802.

The is no system in place that monitors how many retired school superintendents are crossing state lines to work while they are “retired,” and there is no system in the state that checks to make sure that the superintendents are not working another job in Illinois.

Tribune reporters tracked down retired superintendents through Internet searches, newspaper articles and public records, since state records do not track the whereabouts or employment of the retirees.

However, data at the Illinois State Board of Education does show dozens of superintendents moving into its system with 20 or more years of employment at out-of-state districts, but does not show how many are receiving pensions.

All of the superintendents who were contacted by the Tribune defended their employment while collecting retirement benefits, and some were angry that the issue was being raised.

“Somebody who retires can go to another state and work. To me, that is the story, and that’s what I’ve done,” Weninger said.

“I worked uninterrupted for 36 years and obviously made all the (retirement) contributions, as did all of my colleagues,” Bangser, 61, said. “The point is that, I think like anything else, you operate under the rules, restrictions and guidelines of whatever is in place at the time.”

Others see it differently.

One critic, Jeremy Gold, a New York-based actuary and pension expert, called earning multiple government incomes “indicative of sloppy governance and a cavalier attitude by those ‘public servants’ who exploit these loopholes selfishly.”

Gold said “Illinois is the poster child for pension abuses. One of my colleagues calls this child because or children must pay for fiscal irresponsibility.”

“We have allowed a system to develop that is grossly underfunded and that has very generous benefits,” said Laurence Msall, president of Chicago’s Civic Federation, a nonprofit government research organization. “To draw a pension from the state … and then immediately go get another job as a superintendent or in another teaching capacity — they’re really not retiring.”

Another issue that arises when school superintendents play musical chairs, by retiring for the pension and then taking a position elsewhere, is that they deprive employment opportunities for younger administrators moving up in the system, potentially adding to unemployment.

The Chicago Tribune

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