In New York, a 44-year-old firefighter retires with a $101,000 a year pension, for life. Near Chicago, a parks commissioner quits and begins collecting a $166,000 pension – a sum sweetened by $50,000 thanks to a one-time retirement year windfall of $270,000. And in California, a former city manager pulls down $500,000 in retirement checks every year.The economic struggles of the past decade lit the fuse for the pension fund time bomb. In 2000, half of the 50 states had enough money socked away to cover future pension costs, according to Pew. By 2008, only four states -- Florida, New York, Washington and Wisconsin -- could make that claim. The other 46 are potentially on the road to insolvency.Joshua Rauh, associate professor of finance at at Northwestern University, estimates that 20 states will run out of pension money by 2025.
The pension doomsday clocks in Illinois and New Jersey will strike even sooner, in 2018, he said.Another common pension abuse is “double-dipping” – a practice in which employees retire and start collecting their pension, then are rehired to perform their old job at their old salary. It’s a common practice for government workers around the country, despite many rules forbidding it. Workers often argue that they have earned their pension and their right to retire, and if they decide to work during retirement, they're entitled. But the logic there is deeply flawed, said Dean.
"Pensions were designed to make sure government workers were allowed to grow old with dignity, not to make them rich," he said.The outrage, and the actuarial problem
In this series on super-sized government pay, we’ve already met Phoenix police chief/public safety manager Jack Harris, who’s become the nation’s poster child for “double-dipping.” He retired as chief in 2007 and began collecting a $90,000 pension. Two weeks later, he was hired for essentially the same job, retitled “public safety manager,” and granted a salary of $193,000. Harris attracted nationwide attention after a lawsuit was filed by conservative interest group Judicial Watch. The lawsuit claims the public safety manager’s job was manufactured expressly to circumvent both pension rules and a state law aimed at curbing the practice.
Peter Tom is a municipal compensation specialist who’s worked in New Jersey’s complicated government worker environment for three decades. New Jersey even has rules designed to enable double-dippers, he said. Yet, he’s seen all manner of pension-stuffing through the years.
“This would not be allowed in the private sector because pension committees are third party administrators who have fiduciary responsibilities,” Tom said.
While the outrage factor on six-figure pensions and lucrative loopholes is high, Tom also points to a more practical, actuarial problem: Pension recipients aren’t paying their fair share, creating unfunded liabilities. For example, he said, a worker who pays 5 percent of a $10,000 salary into the system for 24 years, then 5 percent of a $140,000 salary for one year, doesn’t cover the costs of a $70,000 pension.
"These loopholes create unfunded liabilities that have helped damage the pension pool.”," he said. "Pensioners are never asked to make up the difference.”Dean’s website maintains a $100,000 club roster, listing pensioners who enjoy six-figure annual payouts. But life expectancy is forcing him to consider new list: the $1 million club, for retirees who will collect seven-figure pensions during their lifetime.
”We have a police chief who will pull in $5 million in California (before he dies),” he said.Just cut and paste ... but the article speaks for itself, I think.But in the end, pensions are about power. Elected officials from local and state governments maintain power by doling out favors and perks, and there is no perk like a pension.
Next week, Tom will be our guide as we delve more deeply into particularly egregious forms of pension loopholes, such as a county sheriff who retired in 1999 but still holds his six-figure-salaried office, the judge with 11 state jobs and the convicted mayor with the $125,000 pension and multiple other sources of state income.