President Obama often states that the federal budget cannot be balanced without health insurance reform. Even if that were true, the real crisis that exists already and will only worsen over time comes from the horrendous obligations taken on by state and local governments for public employee pension plans.
Keith Richman caught on to this problem while a California Assemblyman. He has formed the non-profit California Foundation for Fiscal Responsibility to educate elected officials and the public on the looming budget disaster. Fortunately, he is not the only one touting this pending mess. Ron Seeling, the Chief Actuary for CalPERS (the California public employees’ retirement program), has stated the plan is unsustainable. CalPERS represents state employees and 1,500 local governmental entities.
Some would say the pension problem starts with the unionization of public employees. In California, the major catalyst was SB400, signed by Gray Davis in his first year in office, 1999. The bill lowered retirement age for public safety employees to 50 years old and to non-public safety employees to 55 years old. We are in an era when people are living on average until around 80 years old.
The law gives the employee pension benefits of 3.0% of their final income for each year of service. It also made the 3.0% amount retroactive to the beginning of their employment period. That means if you work 20 years you receive a pension benefit equal to 60% of your final income. The problem was compounded by how they calculated the income on which to base the pension.
Everything including the kitchen sink adds to the final income level. Things such as auto allowance and bonuses boost the final number. If the employee did not use vacation pay or holiday pay for the prior 10 years that adds to the base salary to determine the income. Understanding that in most private sector jobs when you do not use your vacation, you lose your vacation, the ability to accumulate vacation time opens up the system for vast manipulation. Peter Nowicki, the Moraga Orinda fire chief, retired at age 50. His final salary was a whopping $185,000, but small compared to his annual pension benefit of $241,000. Making that matter worse, Nowicki was hired as a consultant to the fire department for an additional $176,000 per year -- on top of his retirement benefit.