The city of San Rafael was not thrown into their current budget deficit just because of the COVID-19 virus. The San Rafael pension plan has been taking up huge amounts of the budget for many years.
While this issue is not unique to San Rafael (340,390 California public employees and retirees who earn more than $100,000 cost taxpayers $45 billion from the state 2018-2019 budget), San Rafael has been near the top of the list for spending the most on pensions for quite a few years.
The San Rafael pension cost paid by taxpayers has been over 50% of payroll since 2010 and was at 60.77% of payroll on the most recent actuarial valuation. Think about that – for every $100,000 in San Rafael payroll, taxpayers must pay an additional $60,770 for just pension cost for the year.
That is an astronomical figure and one of the highest in the state. Wouldn’t we in private industry love to have a 60% employer contribution to our 401(k) plan every year?
I often hear people say that the public pension problem is due to a lack of adequate funding. As you can see from the above numbers, this is not due to a lack of adequate funding. The funding of these pensions is a huge part of every budget in California. It is a benefit problem. Pension benefits are far too high.
According to TransparentCalifornia.com, San Rafael’s average annual pension for a full-career retiree (with more than 30 years service) is $110,317. That’s right, $110,317 per year for the rest of their lives.
Not only that, it also includes a 60% survivor annuity for a spouse. So, after the retiree’s death, a spouse receives $66,190 per year (60% of $110,317) for the rest of his or her life.
In addition, it includes yearly cost-of-living increases regardless of the funded status of the plan. Thus, even if the pension plan is far less than 100% funded (San Rafael was 77.3% funded as of June 30, 2019) retirees still get their cost of living increases each year.
Since 2008-09, the Taft-Hartley plans (private union pensions) that I administer give retiree increases only if the funded status of the plan is in much better shape than the San Rafael pension, and then only in the form of a 13th monthly check (a one-time annual bonus), not a permanent pension increase.
Did you ever wonder why, with ever-increasing taxes, there still seems to be insufficient funds for other services? San Rafael residents and businesses may be shocked to learn that pension and retiree health contributions are equivalent to 91% of the property taxes they pay, with 78.5% going to pensions and 12.5% going to retiree health benefits.
There are many ways to reduce risk in a defined benefit pension plan, yet our public officials keep negotiating under the same fiscally irresponsible system and we taxpayers are asked for increasing sums of money for pensions each year.
As an example, pension benefit formulas need not be based on compensation and certainly not on the participant’s highest one-year or three-year salary as is current public pension practice. None of the Taft-Hartley plans that I administer have pension benefit formulas based on compensation. One should be able to increase an employee’s compensation without a corresponding increase in pension benefits. This practice, plus rich benefit formulas, is the main driver for incredibly high pension benefits that affect every budget in the state.
There needs to be major public pension reform — and soon. The full effects of the recent stock market downturn have not yet been reflected in actuarial valuations. Without major reform, we will be spending more and more budget money on an unsustainable public pension system.
Bob Bunnell, of Novato, is a founding member of Citizens for Sustainable Pension Plans. He is pension manager for a third-party administrator in large private union pension plans across Northern California.
