Employee Salary Perks and Bonuses -The Hidden Unknown Pension Cost

Last month it was reported in Vanguard that the average salary for Federal Fire Fighters in the City of Glendale was $52,803, with a starting salary of $43,485. In comparison, the average salary of a Glendale fire Fighter/ officer was $132,454, with the average pay of Captain making $172,043 based on 2012 Compensation records. This includes, but not limited to wages, overtime, salary perks and bonuses for specialized skills or training, and cash payments for vacation and sick leave.

The California Public Employees’ Retirement System (CalPERS), in August of this year, approved a list of 99 pension sweeteners that includes salary perks and bonuses for specialized skills or training to be added to the cities and county’s burden of pension cost obligations, overriding Gov. Brown’s 2012 pension reform. Most local government entities that comprise cities and counties employees across California, who are contracted with CalPERS to manage its pensions, including the City of Glendale, will now benefit from CalPERS newly revised interpretation of the 2012 pension reform act. CalPERS said that it didn’t know how much the bonuses would add to the cost of worker pensions, even though cities submit detailed pay and bonus information that is used to calculate retirement pay. Some public pension funds that operate independently from CalPERS disagreed with its interpretation, that base pay is what the Legislature and the governor had intended.

• Gov. Brown, who pushed through a 2012 law to stop workers from using questionable perks to unjustly inflate their retirement pay, wants the action reversed. He recently asked state agencies to scrutinize whether the 99 pension sweeteners are legal and appropriate.

These sweeteners, aka salary perks and bonuses, not only boost sworn officers’ salaries and add thousands of dollars to taxpayer-funded pensions throughout their lifetime, but will cause a public agency’s pension costs to soar. An increase of $7,850 to a $100,000 salary can amount to an additional $118,000 in retirement if the employee lives to age 80. CalPERS, the nation’s biggest public pension fund voted to adopt a list of 99 bonuses, ensuring that newly hired California public workers would receive the same pension sweeteners as veteran employees. (1)

What else can we expect from CalPERS labor driven pension board. The repercussions are staggering. The City of Glendale presently has well in excess of 118 employees with pensions well in excess of $100,000, many earning more in retirement than when they were active (pre-retirement) based on 100% of their salary base pay.
The long-term cost of pensions calculated with salary perks and bonuses is in the billions of dollars over and above base pay alone. But CalPERS, a labor-dominated board, voted without estimating the potential cost. In an extraordinary show of union power, it persuaded voters in 1992 to amend the state constitution, requiring the pension board to place more emphasis on providing benefits to workers and less on the cost to taxpayers. In 1993, CalPERS successfully sponsored a bill that gave it the authority to determine what bonuses could be counted toward pensions. Henceforth, the 99 sweeteners.

• Note that this was retroactive for all prior years of service, with no employer/employee contributions for the years that salary perks and bonuses were not earned, just like SB400 in 1999 that increased pensions by 20%, by lowering the retirement age eligibility and increasing the retirement formula, with no adjustment to employer/employee contributions to address this newly established inequity. (2)

CalPERS has proven to be a partisan political player, advancing public-employee interests instead of acting as an unbiased servicing agency—its true mandate. (2) At the LA Times request, CalPERS analyzed salary and bonus costs for Fountain Valley and found that the bonus perks could hike a worker’s gross pay as much as 17%. Some Glendale employees are retiring with pensions over 60% higher than 90% of their last years base salary.

Salary Perks and bonuses can include supplemental pay, extra money that public employees earn when they briefly fill higher-paying jobs. higher pay for maintenance workers who replace street lamps from an aerial bucket, school district employees who supervise kids during recess, librarians who provide direction or resources to library patrons, and policemen who are good marksmen. Aren’t all cops expected to be good shots? Aren’t all librarians expected to assist the public?

• These pay supplements are largely scams to grab more taxpayer money. And CalPERS’ decision to officially recognize these supplements for the purpose of calculating pensions undermines the 2012 pension reform law PEPRA, which disallows “ad hoc” payments being used to calculate benefits. (2)

With $300 billion in investments, CalPERS estimates it still needs an additional $100 billion from taxpayers to deliver on its promised pensions to 1.7 million public workers and retirees. State and local government sent CalPERS more than $8 billion last year, an amount that has quadrupled in the last 10 years, and expected to continue to rise. Some cities expects its payments to CalPERS to increase 87%, over the next six years due to a catch up to employer pension underfunding in prior years. Also, CalPERS asked cities to start paying more because retirees are living longer than prior actuarial estimates. (1)

Glendale use to successfully contract out its EMS service to a private ambulance service, costing between $500,000 and $800,000, with actual paramedics manning the ambulances, not “Basic Life Support” technicians …… More importantly residents were satisfied with the EMS. Now the City pays millions more annually for Fire fighter salary perks and bonuses, overtime, and spiked pensions.

This was a direct result, back in the early 1990’s,(coincidentally around the same time that CalPERS successfully sponsored a bill that gave it the authority to determine what bonuses could be counted toward pensions), that former fire chief Hayes was able to convince the city council that they could bring in millions of dollars annually from EMS billings. He inadvertently failed to mention the additional costs to the city to pay for employee overtime, salary perks, bonuses, and higher pensions.
Since the GFD took over the EMS service, overtime and additional pay escalated from $1.5 million in 1999 to over $7.2 in 2012, with only six structure fires in 2012. Almost 90% of the fire department’s responses is attributed to EMS responses.

Glendale Fire Department Overtime Expenditures
Fiscal Years 1999 – 2010

Year   Amount (millions)    Year Amount (millions)
1999       1.5                            2005         4.4
2000      1.9                           2006         4.9
2001       2.6                          2007          5.8
2002      3.1                           2008          8.2
2003      3.6                          2009           6.5
2004      4.2                          2010            7.1

Source: Glendale Fire Department Budget Study Session – May 25, 2011, Fiscal Year 2011-12

On January 9, 2012, the GFD implemented the paramedic engine/BLS ambulance program, transferring two highly trained paramedic firefighters from the GFD ambulance, onto each of the nine fire engines. The ambulances are now staffed with two hourly non-sworn Basic Life Support technicians to man the ambulances, that required fire engines to accompany the BLS ambulances to the hospital putting the fire engines out of commission indefinitely until released by the hospital, resulting in additional unnecessary overtime. Some of the best practices in the fire service are being compromised under the banner of tradition and culture, at the expense and risk of public safety. Even fire fighters assigned to administrative, working a 40 hour work week with no overtime, receive an annual 11% bonus for their pain and suffering of not being able to work overtime.

Extra pay shall be defined as compensation over and above the unit employee’s base salary for special assignments, differentials, and bonuses.

• Fire Engineer performing Fire Arson Investigation duties as designated by Fire Management shall receive extra compensation in the amount of one thousand three hundred eighty dollars ($1 ,380.00) per month above their base salary.
• Fire Arson Investigation duties shall receive Firearm Proficiency Pay based upon their scale of proficiency as demonstrated upon the approved firearms target type course. The rate of compensation per month for firearm proficiency pay is set forth in the MOU between the City and GPOA.
• extra compensation is granted in recognition as the full and complete compensation for performing the assigned duties and responsibilities of the Fire Arson Investigator assignments. Fire Arson Investigation Pay shall be paid only during those periods or portions thereof when unit employees are actually performing Fire Arson Investigator Duty.
• Platoon Fire Arson Investigation duties as designated by Fire Management shall receive extra compensation in the amount of two hundred seventy-five dollars ($275.00) per month above their base salary. Platoon Fire Arson Investigation Pay shall be suspended for all scheduled work days not worked in excess of thirty (30) calendar days
• Fire Captain, Fire Engineer and Firefighter, who are certified as Hazardous Materials Technicians shall receive extra compensation for the assignment in the amount of two hundred seventy-five dollars ($275.00) per month above their base pay for Firefighter, ($315) Fire Engineer, and ($370) Fire Captain. Hazardous Materials technicians Pay shall be suspended for all scheduled work days not worked in excess of thirty (30) calendar days
• Qualified unit employees designated by Fire Management to receive the Firefighter/Paramedic Pay, Engineer/Paramedic Pay, and Captain/Paramedic pay shall receive extra compensation above their base salary Initial date of assignment by Fire Management through 12th month of assignment 8% per month, and 13th month in the performance of paramedic duties and thereafter: Increase to 16% per month . Firefighter/Paramedic Pay shall be paid only during those periods or portions thereof when eligible unit employees are designated by Fire Management to receive the Firefighter/Paramedic Pay as set forth in this agreement.
• All unit employees not receiving Paramedic Assignment Pay as outlined above shall receive Emergency Medical Services (EMS) pay of 1% based on top step of the Firefighter classification. Qualified unit employees designated by Fire Management to the positionof Firefighter/Staff Assistant shall receive extra pay above their base salary of Five percent (5%) per month based on top-step of the Firefighter classification.
• Foreign Language Proficiency Program is to provide linguistic assistance for non-English speaking person(s), shall receive extra compensation above their base salary in the amount of one hundred forty dollars ($140.00) per month above their base salary, and for hearing impaired individuals who make use of sign language, shall receive extra compensation above their base salary in the amount of one hundred forty dollars ($70.00) per month above their base salary . This extra compensation shall be paid only during those periods or portions thereof when such employees are actually assigned to the Foreign Language or Sign Language Interpreter Proficiency Program.
• Associate Degree, Sixty Units or Certified Fire Officer, shall receive extra compensation in the amount of two hundred dollars ($200) per month above their monthly base salary. Bachelor of Arts (BA) or Bachelor of Science (BS) degree ($250) per month; Masters degree ($300)

The proposed 2014 general fund budget, which pays mainly for fire services, library, parks and other general services, is slated to be roughly $182 million, increasing approximately $11 million compared to 2013. The fire department has requested roughly $2.9 million more. The GFD’s projected budget for 2014/15 is about $56 million. The fire department has 16 new recruits set to become firefighters this year after they finish fire academy training, the first in four years since room for new staff only recently became available after recent retirements. (Note, there was over 4,000 applications submitted for these 16 slots). Officials hope to hire six more firefighters next year, said Brand Villanueva, fire department spokeswoman. Fire fighters generally work 3 days and get 9 days off. This is the equivalent of 9 days work days out of a given month.

The GFD’s actual salaries, including overtime, salary perks and bonuses increased from $17.7 million in 2001 to 32.8 million in 2012, a 85.3% increase, that includes a recession and a lack luster economy since 2008. This begs the question, why did the City Council negotiated to pay overtime to firefighters, at time and a half, when they are already salaried personnel earning a substantial base pay, and the City averages 10 structure fires or less per calendar year. The State of California does not pay state employees on salary overtime. Instead, they earn CTO – Compensating Time Office, at straight time, not time and a half, that can be used like accrued vacation.

If it wasn’t for the Fire department misrepresenting to the city Council that they could bring in over a million dollars in billable revenue annually, if the paramedic ambulance service was transferred to their authority, it would be very difficult for the city fire department to justify maintaining 9 fire stations including all the overtime, salary perks and bonuses.

In the Los Angeles County Fire Department (LACFD), recruits can make more than $100,000 annually within a few years. After retirement, the firefighters receive yearly pension and health benefits that average more than $130,000 . The department’s recruit hiring, which is supposed to be based on merit, favored sons and relatives of firefighters. The LA Times investigation found a disproportionate number of relatives in the ranks and evidence of cheating in recruitment, i.e. insiders attempted to manipulate hiring by conducting a lottery that kept some of the most qualified applicants from being selected to take the test. In addition, LACFD personnel circulated a list of questions and suggested answers for formal applicant interviews throughout the department’s station houses. At least 183 sons of current or former firefighters and 187 other relatives, out of a total of 2,750 County Firefighters (13.5%), have served in the department since the start of 2012, according to an analysis of payroll, pension, birth, marriage and other records. As a result, some Board of Supervisors called for stripping the Fire Department of its hiring authority entirely. As a compromise, the Board created a “strike team” of monitors to oversee the future hiring by the LACFD. (3)

Several attempts have been made by concerned Glendale city residents to see how many city workers currently employed and/or hired over the past ten years are family members or relatives of other active or retired city employees. The Glendale City Attorney rebuffed all those requests as if they have something to hide. This appears to be indicative that nepotism may be prevalent in the City of Glendale. Maybe the LA Times should conduct an investigation of the City of Glendale as well.

It’s evident that salary perks (bonuses) was never intended for to be included as part of pensions. This was a direct result of CalPERS’s becoming a labor dominated board. It’s absurd for labor union members to be serving on the CalPERS Board. It’s a direct conflict of interest for labor board members to be voting on the very issues that benefits the public sector employees who’s mandatory dues and fair share fees financially support the labor board member’s own salaries and benefits.

This is a prescription for fiscal irresponsibility and dereliction of duty that will put every local government city entity, contracted with CalPERS in harms way, dealing with future unsustainable pensions and benefits, budget deficits, and substantial reductions in city services. With respect to layoffs, guess who gets laid off first? It’s not fire or police officers. It’s the lowest common denominator of expendable, lowest paid, non-essential employees, providing services to the public, i.e. libertarians, maintenance workers, parks and recreation, business license, building & safety, public works, Glendale water & power services, etc… that does little to help the budget.

A possible cure all for some city’s may eventually be bankruptcy, to escape this incurable public sector contractual debt obligation, negotiated by politicians beholden to the very unions that guaranteed their reelection every election cycle. Tip for Tad. As Detroit emerges from bankruptcy, under court approval, the pensions of non-uniformed workers will be cut 4.5%, and they lost their cost-of-living increase. Police and fire personnel had their cost-of-living increases cut from 2.5% to 1%. Both groups lost 90% of their healthcare benefits. (4)

• It’s incomprehensible that police and fire personnel was able to keep 1% of their annual cost of living increase when they have the highest pensions in comparison to non-uniform personnel. Having said that, eliminating 2% COLAs for non uniform personnel, and reducing fire and police’s COLA by 1.5% annually, and 90% of their healthcare benefits, will substantially reduce future increases in pension and health benefit obligation. In California, most local government entities, including Glendale, only paid for current health benefit obligations. No money is withheld from employees or set aside for future retirement health benefits. It’s totally unfunded.

With respect to salary perks and bonuses, it’s sporadic, earned during the employee lifetime employment. There is no continuous contribution for future retirement pension cost obligation when it isn’t regularly being earned. What is evident, and a no brainer, is that every local government employee in their last year of employment will spike their pension, by earning every conceivable salary perk and bonuses available to maximize their beginning pension.

The law states that pensions must be based on “the normal monthly rate of pay or base pay.” This language was intended to end “pension spiking”—the practice of boosting “pensionable” income using supplements such as overtime pay, unused vacation pay, allowances, and bonuses. (2)

• This is why pensions should be limited to “the normal monthly rate of pay or base salary ” excluding salary perks and bonuses that can be manipulated in the last year of employment, to game the system by taking advantage of a obvious loophole in the system at taxpayers expense.

Source Reference:
(1) http://www.latimes.com/business/la-fi-pension-fight-20141023-story.html#page=1
(2) http://blog.independent.org/2014/08/20/theres-99-new-ways-to-spike-public-pensions-in-california-thanks-to-calpers/
(3) http://www.latimes.com/local/countygovernment/la-me-county-fire-watchdog-20141106-story.html
(4) http://www.latimes.com/nation/la-na-detroit-bankruptcy-approved-20141107-story.html