MOORLACH UPDATE — Pre-PEPRA Rush — February 12, 2017

What a difference a day makes.

When the Orange County Board of Supervisors majority in 2004, Supervisors Silva, Wilson and Campbell, voted to approve the general employee defined benefit pension formula to a generous 2.7% at 55 something unusual happened.

It should not have been a surprise, because people are motivated by finances. But, hardly anyone retired until the new formula, retroactive to the date of hire, became effective. More than 800 of the 17,000 county employees retired within days of the effective date. I was attending retirement parties almost every evening.

The Sacramento Bee has observed this phenomenon, but in reverse. Before the PEPRA changes took effect, a hiring binge occurred. The piece below shows some good investigative work. There is only one correction that I would make. I do not have a pension with CalPERS. My pension is with the Orange County Employees Retirement System for my 20 years of service (where I retired at a much lower salary than I was compensated with while serving as Treasurer-Tax Collector).

With pension reform looming, these California departments went on a hiring spree
Read more here: http://www.sacbee.com/news/investigations/the-public-eye/article132104954.html#storylink=cpy

CalPERS is one of a handful of California government departments that in 2012 added more staff than usual in the last week of the year. Those new hires were the last to accrue pension benefits under a generous formula that the state began to phase out on Jan. 1, 2013. Sacramento Bee, file
Read more here: http://www.sacbee.com/news/investigations/the-public-eye/article132104954.html#storylink=cpy

BY ADAM ASHTON AND PHILLIP REESE

aashton
http://www.sacbee.com/news/investigations/the-public-eye/article132104954.html

On the eve of major pension changes that would crimp retirement benefits for new hires, a handful of California government agencies went on a holiday hiring spree.

The Board of Equalization hired 25 new faces that week. Seventeen reported for their first day of work on New Year’s Eve.

The Sacramento Metropolitan Fire District brought on 23 new recruits between Dec. 24 and Dec. 31 of 2012. A spokeswoman said the department was racing to fill spots in a fire academy scheduled to begin Jan. 2, 2013.

And the state’s pension fund itself welcomed 20 new employees that week, including two well-paid investment fund managers who started work on New Year’s Eve.

Their timing was fortuitous.

By beginning work in the waning days of 2012, the employees enrolled in the California Public Employees’ Retirement System just in time to gain a generous pension formula adopted during the dot-com boom of 1999 that allowed most public workers to retire at age 55.

By contrast, most employees hired after Jan. 1, 2013, would have to work until age 67 to gain their full benefits.

Across the state, 707 people started work at local governments and state departments that participated in CalPERS during the last week of 2012. Another 64 employees from the city of Coalinga joined CalPERS that week, meaning 771 public workers entered the network just in time to become eligible for the expiring benefits.

That’s triple the average number of new hires at CalPERS-affiliated governments in the last week of the other years between 2007 and 2014. In five of those years, fewer than 275 public employees started work between Dec. 24 and Dec. 31.

The hiring spike was most pronounced on Monday, Dec. 31, 2012, when state records show 204 public employees reported to work for the first time.

New Year’s Eve in 2007 also was a Monday. Eighty-six California public employees started work that day. In every other year The Sacramento Bee reviewed, 30 or fewer California public employees had their first day on the job on a New Year’s Eve.

204Number of California public employees who started work on New Year’s Eve, 2012 – the day before pension reform took effect

The big numbers suggested to pension watchers that job candidates and certain government offices rushed to seal employment offers before the retirement changes took hold. Several government officials declined to defend the practice publicly, but said privately that their departments operated within the existing rules.

“If you’re being interviewed and you’re fully aware that (pension reform) happened because you’re applying with the state, I would think there was a lot of incentive to say ‘Hire me now or I’ll walk,’ ” said state Sen. John Moorlach, R-Costa Mesa, a retired Orange County treasurer who receives a pension through CalPERS and who has sponsored bills encouraging further retirement changes.

The hiring process for most public sector jobs usually takes months, so candidates may have been in talks with their employers when Gov. Jerry Brown signed the pension reform bill in September 2012.

“You get all of these agencies with unfilled positions saying it just is so arduous to hire and we can’t find qualified people, and then all of a sudden, they put their minds to it and they’re able to accomplish the hiring quite effectively,” said Marcia Fritz, an accountant who lobbied for pension reform early in the Brown administration.

Tax board reviewing hires

The Bee requested the CalPERS data after tipsters alleged workers at CalPERS and the Board of Equalization began their jobs with suspicious start dates. Those two organizations had the most new hires on Dec. 31, 2012.

Dan Elliott, a spokesman for the Board of Equalization, said the tax board considered the New Year’s Eve hires to be unusual, and it is reviewing them.

At least 10 of the tax board’s new hires reported to work at what was then a brand new call center in Culver City. The state Department of Finance has requested records about those new hires as part of an audit investigating the tax board’s personnel practices, according to records obtained by The Bee.

A press release the tax board issued in November 2012 to announce hiring for the call center read, “What better gift to receive than a job for the holidays!”

Most of the late-year CalPERS hires were information technology specialists who went to work on a large project that the department was shifting from a private contractor to in-house employees, said CalPERS spokeswoman Amy Morgan.

I WOULD THINK THERE WAS A LOT OF INCENTIVE TO SAY ‘HIRE ME NOW OR I’LL WALK.’

State Sen. John Moorlach on late-year hiring in 2012

The CalPERS board had approved the positions when it adopted its budget in May 2012, she said.

“There is no benefit for an employer to hire before” the pension reform law took effect, she said. “In fact, it saves the employer money if they’re hired after Jan. 1, 2013.”

Many departments apparently followed that guidance. About 3,250 employees joined the workforce with the state and other California local governments in January 2013, roughly 300 more than the number of hires in December 2012.

The Legislature passed its pension reform bill in the wake of a recession that clipped CalPERS’ robust investment returns, leading it to draw more money from taxpayers to fund retirements for public employees.

Before the reform bill, public employees enrolled in CalPERS could retire at age 55 with 2 percent of their salary for every year of their public careers. If they retired at age 63, their formula would give them 2.5 percent for each year of service. Police and firefighters had a better formula, allowing them to retire at age 50 with 3 percent of their salary for every year of service.

After New Year’s Day in 2013, police and firefighters could still retire at age 50, but with just 2 percent of salary for each year of service. The rate climbs to 2.7 percent per year until the employee turns 57.

Under the most common new pension formulas, other workers become eligible for retirement at 62 with 2 percent of salary per year of service. Their pension rates cap at 2.5 percent when the employee reaches age 67.

“This is the biggest rollback to public pension benefits in the history of California pensions,” Brown said when he signed the law on Sept. 12, 2012.

$900,000Difference in lifetime retirement earnings for Sacramento firefighters who retire at age 50 under new pension formula

His administration did not instruct government departments to hold off on hiring until the new formulas kicked in at the start of 2013.

The Governor’s Office declined to comment for this story. It directed questions to the state Human Resources Department, which declined an interview request. It issued a statement that read, “As with any change in law or regulations that affect California’s state employees, we expect our departments to not just comply but also uphold the spirit and intent of those laws and regulations.”

Short- and long-term savings

Brown and CalPERS recently have said the 2012 pension reforms are working as intended, saving money for the local and state government departments that participate in the fund. CalPERS remains underfunded and in December voted to lower its investment forecast, acknowledging that its returns would remain below past projections for some time.

In June, CalPERS estimated that almost 30 percent of public employees who will draw retirements from the fund are accruing their benefits under the post-2013 formulas. Those employees contribute more money from their paychecks toward retirement than the state workers who will retire under the older benefit model, saving government departments between 1.2 percent and 5.1 percent of their projected payroll costs, according to CalPERS.

“The law, supported by a large bipartisan majority, was designed to net both short- and long-term savings. It is doing just that,” said Steve Maviglio, a spokesman for union-backed groups that are working to preserve public pensions.

In Christmas week 2012, the departments that added the most new hires were:

▪ Santa Clara County, which started 37 new employees. The county did not answer multiple calls and emails asking why it accelerated hiring that week.

▪ The Board of Equalization, with 25 employees.

▪ The Sacramento Metropolitan Fire District, with 23 new hires. It was filling spots in a fire academy to work on new ambulance shifts that would open in March.

▪ The state Public Health Department, with 22 new employees. A spokeswoman for the department challenged the number late Friday, saying the department hired 15 people that week.

▪ CalPERS, with 20. Eight started their jobs on New Year’s Eve.

▪ The Public Services Transportation Commission of Los Angeles, with 18.

▪ The Bay Area Rapid Transit District, with 16.

▪ The state hospital at Atascadero, with 13.

▪ Placer County, with 14. A spokesman for the county said it was adding staff to prepare for new work with Covered California.

▪ California State University, San Luis Obispo, with 11. One of them was a campus vice president.

Some of the organizations disputed that their holiday week hires represented a bump in late-year start dates.

A spokeswoman for BART, for instance, noted that the organization often hires more than a dozen people in a week. Similarly, representatives for the Department of Public Health and the state hospital at Atascadero said their departments added more new employees in January 2013 than they did in December 2012.

However, records obtained by The Bee show that those departments rarely added many employees over the holidays between 2007 and 2014. BART was an exception. It added seven employees in the last week of 2013.

California has about 250,000 state employees, and the roughly 700 who started work in the last week of 2012 won’t sink the long-term viability of Brown’s pension reform.

But the difference is meaningful to workers.

Take the recruits who joined the Sacramento Metropolitan Fire District, for instance.

The average salary for active safety members there between ages 45 and 54 is about $133,000, according to the district’s latest CalPERS valuation report. The average starting age of firefighters at Metro Fire is 28.

THE LAW, SUPPORTED BY A LARGE BIPARTISAN MAJORITY, WAS DESIGNED TO NET BOTH SHORT- AND LONG-TERM SAVINGS. IT IS DOING JUST THAT.

Steve Maviglio, spokesman for retirement security group

Someone who started at that age and made that much under the old pension calculation would receive an annual pension of $88,000 beginning at age 50, earning about $2.65 million in current-dollar pension payments during the first 30 years of retirement.

Under the new formula, a safety worker making $133,000 who started at age 28 would make an annual pension of roughly $58,500 with retirement at age 50. Over 30 years, that safety worker would earn about $1.75 million in current dollar pension payments, about $900,000 less than under the old system.

If the 23 Metro Fire employees hired during the last week of 2012 started at a typical age, made a typical salary, and retired at age 50, they would cumulatively earn about $20 million less in current-dollar pension payments over 30 years than they would have made had they been hired a week later.

The CalPERS investment fund managers who started work in late 2012 earn about $200,000 a year in base pay. If they work 20 years for CalPERS, they could retire at age 55 with a pension of about $80,000 a year. Had they started work a day later, they’d have to work until age 62 to earn that pension.

Adam Ashton: 916-321-1063, @Adam_Ashton. Sign up for state worker news alerts at sacbee.com/newsletters.

HOLIDAY HIRING

Hiring at California public agencies accelerated on the eve of pension reform between Dec. 24, 2012, and Dec. 31, 2012. How the 10 departments that added the most new people in that window have hired in end-of-year holiday weeks:

Department 2011 2012 2013
Santa Clara County 8 37 0
Board of Equalization 0 25 2
Sacramento Metropolitan Fire District 0 23 0
Public Health Department 1 22 1
CalPERS 2 20 1
Public Transportation Services Corp. (L.A. rail) 0 18 2
Bay Area Rapid Transit District 0 16 7
Department of State Hospitals – Atascadero 0 13 0
Placer County 2 14 5
California State University, San Luis Obispo 0 11 1

Source: CalPERS

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