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    Decoding public pension systems

    There are more than 130 pub­lic em­ploy­ee re­tire­ment sys­tems in the state, and each has to com­plete an­nu­al re­ports of con­tri­bu­tions, in­vest­ments, as­sets and li­ab­il­it­ies.

    There has been much pub­lic de­bate about the high pen­sions re­ceived by some top gov­ern­ment of­fi­cials. Here is a sum­mary of what in­form­a­tion is pub­licly avail­able.

    What funds do cities and public agencies use to provide retirement benefits for their employees? How do they work?

    There are more than 130 pub­lic em­ploy­ee re­tire­ment sys­tems in Cali­for­nia. The largest and most prom­in­ent is CalP­ERS, which has about 1.6 mil­lion mem­bers. Oth­er ma­jor funds in­clude the Uni­versity of Cali­for­nia Re­tire­ment Sys­tem and the State Teach­ers’ Re­tire­ment Sys­tem, known as Cal­STRS. Many large cit­ies and counties have their own re­tire­ment sys­tems, in­clud­ing Los Angeles County, San Fran­cisco County and the cit­ies of Los Angeles, Oak­land and San Diego.

    Cit­ies and pub­lic agen­cies con­trib­ute a por­tion of staff salar­ies to the fund each year. Em­ploy­ees must con­trib­ute as well, al­though in some cases the em­ploy­er pays the re­quired amount on the em­ploy­ees’ be­half. The ad­min­is­trat­ors of the fund then in­vest the money.

    Em­ploy­ees re­ceive an an­nu­al pen­sion from that fund once they re­tire. Their ex­act pen­sion is de­term­ined by a be­ne­fit for­mula set by the agency. Most for­mu­las mul­tiply a per­cent­age of the em­ploy­ee’s highest an­nu­al salary by the num­ber of years they worked for that agency.

    The agency also de­term­ines the age at which em­ploy­ees are eli­gible to re­tire. In most cases, pub­lic safety work­ers such as po­lice and fire­fight­ers can re­tire at 50, and oth­er em­ploy­ees can re­tire at 55 or 60.

    Where can I find more information about public pension systems?

    Pen­sion plans pub­lish a Com­pre­hens­ive An­nu­al Fin­an­cial Re­port and an ac­tu­ar­ial valu­ation re­port each year. These re­ports are cru­cial to un­der­stand­ing how the pen­sions are fun­ded. Laura Quinby, a re­search­er at the Cen­ter for Re­tire­ment Re­search at Bo­ston Col­lege, said there are three sec­tions with­in these re­ports that are es­pe­cially im­port­ant:

    • The Sched­ule of Fund­ing Pro­gress provides in­form­a­tion on the plan’s as­sets, li­ab­il­it­ies and fun­ded ra­tios.
    • The Sched­ule of Con­tri­bu­tions provides in­form­a­tion on the An­nu­al Re­quired Con­tri­bu­tion for the city or agency.
    • The Plan Pro­vi­sion provides in­form­a­tion on the nor­mal re­tire­ment age, be­ne­fit for­mula and mem­ber con­tri­bu­tions.

    “It’s im­port­ant to put pen­sion fig­ures in con­text,” Quinby said. “Tax­pay­ers should con­sider pen­sion costs re­l­at­ive to over­all budgets.”

    How can I tell how much my city is paying in pension costs?

    Re­quest this type of in­form­a­tion dir­ectly from your city, not from the fund. Each city should have its own ac­tu­ar­ial re­ports com­pleted each year, along with their an­nu­al fin­an­cial re­views. These re­ports are pub­lic re­cord and should be avail­able upon re­quest.

    There are sev­er­al im­port­ant fig­ures to look for in these re­ports. One is the Em­ploy­er Con­tri­bu­tion Rate for each cat­egory of em­ploy­ee. This fig­ure in­dic­ates the per­cent­age of staff salary that a city or agency pays in­to the pen­sion fund. Res­id­ents should also check if their cit­ies of­fer a 401(a) plan or a 457 plan to em­ploy­ees. These sup­ple­ment­al plans can in­crease the agen­cies’ an­nu­al ex­pendit­ures on re­tire­ment be­ne­fits.

    Who keeps track of whether pensions are underfunded? Are those reports available to the public?

    State law re­quires each pen­sion fund to con­duct an in­de­pend­ent audit each year. Those aud­it­ors eval­u­ate the as­sets of the fund and its fu­ture li­ab­il­it­ies. Their re­ports are then for­war­ded to the state con­trol­ler’s of­fice. This pro­cess can be ex­tremely time-con­sum­ing be­cause of the size of the funds and the scope of their in­vest­ments, Fong said.

    “It’s fairly com­mon for ac­tu­ar­ial re­ports to be put out after a year’s lag,” Quinby said. “They’re start­ing to get bet­ter about it, but late re­port­ing is def­in­itely an is­sue.”

    Spokes­man Gar­in Ca­sa­leggio said the con­trol­ler’s of­fice com­piles re­ports as they re­ceive them from the vari­ous re­tire­ment sys­tems. At this point, the most re­cent re­cords avail­able from the con­trol­ler’s of­fice are from the 2006–2007 fisc­al year, but Ca­sa­leggio said he ex­pects later re­ports to be avail­able in the com­ing months.

    What is a pension spike?

    Pen­sion spik­ing is an in­form­al phrase to de­scribe meth­ods of boost­ing pen­sions bey­ond what ac­tu­ar­ies would project. Mar­cia Fritz, a pen­sion ex­pert based in Sac­ra­mento, de­scribed it as a pro­cess of “cherry-pick­ing” ex­tra cred­its to boost com­pens­a­tion in the fi­nal years of em­ploy­ment. Be­cause pen­sion for­mu­las typ­ic­ally use a work­er’s highest an­nu­al salary to com­pute an­nu­al be­ne­fits, these changes can sig­ni­fic­antly in­crease the ul­ti­mate pay­outs.

    CalP­ERS spokes­man Ed Fong said that ad­min­is­trat­ors rely on their in­tern­al guidelines in re­view­ing what com­pens­a­tion is eli­gible for pen­sions. He noted that CalP­ERS does not count over­time or va­ca­tion pay­outs in pen­sion cal­cu­la­tions.

    Do funds monitor pension spiking? Is there any way to spot it through public records?

    Fritz said it’s hard to catch pen­sion spik­ing be­cause it re­quires very spe­cif­ic re­cords on in­di­vidu­al em­ploy­ees. She said one thing to watch out for is a po­lice or fire chief who re­tires shortly after re­ceiv­ing the po­s­i­tion, or a city em­ploy­ee who holds mul­tiple titles in the fi­nal years of em­ploy­ment.

    Quinby also said that it’s very dif­fi­cult — if not im­possible — for a cit­izen to spot a pen­sion spike on their own.

    “There’s really no way to do that, or to pre­dict it in any way,” she said. She ad­ded that the best thing for res­id­ents to do is to ask wheth­er their loc­al plan has any anti-spik­ing pro­vi­sions in place.

    Some funds have re­cently es­tab­lished rules in­ten­ded to pre­vent “gam­ing the sys­tem,” she said.

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