MOORLACH UPDATE — Rule of 72 — August 3, 2015

The OC Register provides two pieces of interest. Today’s front-page lead story addresses the marvel of compounding, and is the first piece below. To start, allow me to quote from Wikipedia on the "Rule of 72:"

In finance, the rule of 72 is a method for estimating an investment’s doubling time. The rule number is divided by the interest percentage per period to obtain the approximate number of periods (usually years) required for doubling. Although scientific calculators and spreadsheet programs have functions to find the accurate doubling time, the rules are useful for mental calculations and when only a basic calculator is available. These rules apply to exponential growth and are therefore used for compound interest as opposed to simple interest calculations (see https://en.wikipedia.org/wiki/Rule_of_72).

Here is what one famous individual had to say about compounding:

“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”
― Albert Einstein

If your annual pension benefit increases by 3 percent every year, then your total benefit will double in 24 years. If you retire at age 63 with a $100,000 pension, it will grow to $200,000 when you reach the age of 87. This phenomenon was observed by the OC Register, when looking at the salary of newly appointed County Counsel Leon Page, who replaced retiring Nick Chrisos, and compared it with the annual pension benefit of former County Counsel Adrian Kuyper.

While I served as a County Supervisor, I only asked the County’s Executive Office to draft one piece of legislation for me. It was to limit cost of living adjustments (COLAs) for retirees if the pension plan was not funded adequately. To make a long story short, this one assignment was not met with enthusiasm. Although the County Counsel’s office did a great job, it was telling to watch the lack of effort expended on it by senior management. Addressing COLAs was also one of my two Board of Supervisors legislative platform suggestions for 2015, but it has since been pulled by this year’s Chair. All to say, ongoing annual COLAs are adding to the costs of public employee defined benefit pension plans and should be addressed. (The OC Register website included two file photos, which are also included below.)

I am complimented when I am quoted from one of my UPDATEs. In the second piece below, in Sunday’s Opinion section of the OC Register, in the second of its two editorials, did it; and I am appreciative (see MOORLACH UPDATE — Boxing With Nick Berardino — July 28, 2015 July 28, 2015 John Moorlach).

I almost wonder if the praise heaped on Mr. Berardino by the OC Register‘s editorial board, in the fourth paragraph, is a subtle way of communicating a message that was a common theme in "Laurel and Hardy" comedy sketches: "Well, here’s another fine mess you’ve gotten’ me into." For the mess we are left with, see MOORLACH UPDATE — Pension Hole — July 31, 2015 July 31, 2015 John Moorlach).

To paraphrase another comedian, Bob Hope, "Nick, thanks for the memories. It was quite an experience to have sparred with you over the years."

OC Register Logo

Gobbling up the pension pie
Cost-of-living increases boost former county employees, even as resources remain strained.

BY TONY SAAVEDRA

The number of retired Orange County workers making more than $100,000 in annual pensions has more than doubled in the past five years, even as debate rages about the financial health of the county’s and other pensions.

What’s more, powered by annual cost-of-living raises, former county employees who made the most during their careers are taking up a bigger chunk of the pie in retirement, according to an analysis by the Orange County Register.

In all, 1,131 retired county workers collect $100,000 or more annually, meaning 8.4 percent of the pensioners are getting 24 percent of the pension kitty. Five years ago, the $100K club accounted for 4 percent of county retirees and received 13 percent of the pie.

The average pension paid to former county workers is $44,435 a year; and 12,262 retirees make less than $100,000 a year. County pension recipients generally don’t collect Social Security.

“The guys at the top are getting richer,” said Marcia Fritz, a Sa- cramento pension activist and certified public accountant.

Data for the Orange County Employees Retirement System obtained by the Register show that 13,393 county pensioners have received $48.8 million in cost-of-living adjustments during their retirements. For some of the oldest retirees, the raises have pushed their pensions far above what they were paid when they were working.

In a few cases, pensioners make more than the people who do their former jobs.

Consider former County Counsel Adrian Kuyper, who retired in 1991, when his final average salary was $129,000.

Today, Kuyper gets $218,659, or about $8,000 more than the recently appointed county counsel, Leon Page.

“He got a no-risk annuity,” said Fritz. “He doesn’t lose it no matter what happens to the market.”

Kuyper, 87, served the county for 34 years. As a lawyer, he theoretically could have made significantly more in private practice.

He said in an interview that the guaranteed pension is why he stayed in government practice.

“I’m not trying to justify it or criticize it … I’m just saying that’s the way it is,” Kuyper said. “That was my career.”

The no-risk nature of government pensions is so solid that even going to jail won’t endanger a retiree’s benefits.

Take former Sheriff Mike Carona, who this year returned to Orange County to finish the last few months of his 5 1/2-year federal prison sentence in home detention. While behind bars for witness tampering, cost-ofliving increases

pushed Carona’s yearly pension to $231,921–$18,000

more than when he was working.

The cost-of-living adjustments are voted on annually by the retirement board and tied to the Consumer Price Index, capped at 3 percent.

They come at a time when the county’s pension is 70 percent funded, meaning it has $7 out of every $10 needed to cover its longterm commitments. Some accountants say retirement systems should be at least 80 percent funded to be considered financially stable.

State Sen. John ‍Moor‍‍lach, a nationally recognized expert on pensions and a former Orange County supervisor, said longer lifespans plus cost-of-living adjustments combine to pose a threat to the longterm health of the pension fund.

He sees limiting cost-ofliving adjustments as a tool to restore the county pension, and possibly others, to fiscal health.

During his tenure on the county board, ‍Moorlach considered floating a bill that would cancel cost-ofliving increases for retirement systems that were less than 80 percent funded. Now that he is in state office, ‍Moorlach said he might revive the proposal to affect all pensions in California.

“Otherwise, you are emptying (the funds) way too quickly,” said ‍Moorlach, who recently started collecting a pension worth $83,820 a year after serving the county for 20 years.

Robert Kinsler, spokesman for the retirement system, said the cost-of-living increases are no different from the ones given by Social Security – except Social Security doesn’t guarantee such a large part of a retiree’s salary.

Jennifer Muir, general manager for the Orange County Employees Association, questioned the focus on higher-paid retirees, noting that most who work for the county don’t live in luxury in retirement.

“It’s unfortunate these sticker-shock stories erode public confidence in people who contribute by working hard and playing by the rules,” Muir said.

“There’re no janitors, no clerks, no librarians making $150,000 a year.”

Muir and others point out that the pension is structured on retirement formulas approved by policymakers.

The pension plans have encouraged employees to retire earlier with a larger share of their salaries – pushing the fund’s longterm debt to $4.9 billion. The tax-guaranteed pensions come from employee contributions, contributions by government agencies and retirement system investments.

In recent years, newer government employees have been forced to pay for a larger share of their benefits.

But that doesn’t mean the plan is closer to solvent.

“Mortality rolls are your biggest variable. I don’t see those coming down any time soon,” said Gary Caporicci, a local certified public accountant who specializes in municipal pensions.

“There are fewer employees, but that won’t change retirement for the next 20 years.”

CONTACT THE WRITER: tsaavedra  

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Then-Orange County Supervisor John Moorlach, whose district included John Wayne Airport, questions a representative of Delaware North as officials debated proposals for food services at John Wayne Airport. JEBB HARRIS, FILE PHOTO

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John Moorlach, then an Orange County Supervisor and Bolsa Chica Conservancy board member with his wife Trina Moorlach of Costa Mesa during the OC Dreamin’ Gala at the Quicksilver headquarters in Huntington Beach in 2013. STEVEN GEORGES, FILE PHOTO

O.C. Labor leader Berardino hangs up the gloves

Register editorials have a longstanding and necessary history of respectfully disagreeing with many of the policies pushed by public employee unions. From unsustainable increases in defined benefit public employee pensions to the states unfunded health care liabilities for public workers to teacher tenure, we simply see things differently.

Even with such emphatic differences in opinion, though, we also recognize the influence and effectiveness unions have had in winning policy battles in the Golden State and even in Orange County. In fact, one of the most influential political figures in the county over the last few decades has been the head of the county’s largest public sector union, the Orange County Employee Association, Nick Berardino.

Mr. Berardino officially retired Saturday after four decades of working for the OCEA, serving as its general manager for the past 11 years, but his legacy will be long felt.

A U.S. Marine Corps veteran of the Vietnam War and avid boxer, Mr. Berardino can undoubtedly rattle off a long list of achievements as the county’s premier union representative: He fought to maintain raises for public workers in the aftermath of the county’s 1994 bankruptcy; he played a decisive role in the “2.7 @ 55” pension enhancement formula, where, after age 55, union members receive 2.7 percent of their highest yearly salary multiplied by years in the union; and under his tenure union membership for the OCEA tripled despite historic lows nationally.

Part of the reason for his success is due to his affability, grittiness and tenacity. Even those who disagree most fervently with Mr. Berardino get along with him and respect his capabilities. As the head of a union, Mr. Berardino’s job was to “acquire as much as possible for the county’s employees,” as state senator and former county supervisor John Moorlach noted in a recent email missive. Agree or disagree with him and the policies he pushed, Mr. Berardino certainly did just that.

To be sure, even in retirement we don’t imagine Mr. Berardino’s voice will go silent. He isn’t the type. As of now, he intends to remain in his position on the Orange County Fair Board, where hopes to build a Heroes Hall at the fairgrounds and will remain a consultant part-time for the OCEA as well as continue serving as vice president of the California Labor Federation.

Many of his sparring partners are gone and largely forgotten, but the fighter still remains. For his membership, Mr. Berardino’s willingness to go the distance with any opponent is evident in the legacy he leaves as the leader of the progressive and labor movement in one of the state’s most Republican counties.

This e-mail has been sent by California State Senator John M. W. Moorlach, 37th District.

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