San Francisco’s police chief
retired recently at age 53 after 30 years of service on a pension of $239,000
per year. San Francisco allows its employees to retire on 90% of their final
average pay after 30 years of service. Let’s just try to calculate the value or
cost of a pension of $239,000 per year. A pension actuary would use a present
value calculation but to keep it simple, it would take about $6,000,000 earning
4% interest to provide $240,000 of income per year.
The chief is only the tip of the
iceberg in San Francisco where 146 retired city workers and their survivors are
knocking back $100,000 or more a year in pension money. If those 146 people
receive only $100,000 per year, that’s a minimum of $14,600,000 a year in
pension benefits. At 4% interest it would take $365 million to provide
$14,600,000 per year.
CalPERs, the California pension
system has over 4800 former employees with pensions over $100,000 per year. The
former city manager of the town of Vernon receives a pension of $499,000 per
year. Is it any wonder that California is on the verge of bankruptcy? None of
the characters that Arnold Schwarzenegger portrayed in the movies would have
had the nerve to go before Congress and ask for a bail-out while at the same
time doing nothing to reform the most generous pension system in the whole
country. The only other alternative proposed by his successor as Governor is to
make drastic cuts in needed state services or increase taxation.
It is true that government
employees are required to contribute to their defined benefit plans during
their working years. However, the rate of contribution will never fund their
generous retirement plans. If over her 30-year career the San Francisco police
chief had contributed $15,000 per year into a 401k type plan, which managed to
earn 5% each year, she would have accumulated a little over $1,000,000 in her
retirement account. Using 5% interest the account would have provided an income
of $50,000 per year. It is obvious that her retirement plan is almost five
times better with absolutely no risk!
A call for pension reform does not
imply criticism of government employees and their work. Like the rest of us
most of them work hard at their jobs and deserve to be financially secure in
retirement. Nevertheless, their defined benefit pension plans are dinosaurs
that are crushing the rest of us under foot. They even prevent cities and
states like California from hiring needed teachers, police, firefighters, and medical
and social workers.
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