PENSIONS: Alameda’s $100k club
Craig Ojala retired from the Alameda Police Department in 2008, after 30 years on the job. Ojala started working in the department as an officer in 1979, when he was 20 years old, and rose to the rank of interim chief in 2005 before leaving the department as a captain.
For his service, Ojala earns a pension of $179,730 a year, according to a database compiled by the conservative California Foundation for Fiscal Responsibility that lists retired public employees earning pensions of $100,000 or more a year – more than any other retiree from the City of Alameda.
Ojala is one of 50 people who have retired from the city with six-figure pensions, the database shows, with the CalPERS pension fund’s annual payouts for those employees alone totaling $6,248,187. The list is topped by former police and fire brass and includes an assortment of former managers and even some members of the city’s rank and file.
The figure is a “squeal point” for taxpayers, a report on pensions issued recently by the state’s Little Hoover Commission said, and it is being used as a tool to further pension reform efforts that include tighter limits on benefit payouts, higher employee contributions and the creation of a “hybrid” system that includes 401(k)-style defined contribution plans for new public employees.
But defenders of the existing defined benefit pension plan said they’re working to make changes that will help cities manage rising pension costs, including some of the changes reformers seek. And a spokesman for CalPERS, the public pension fund where Alameda invests its employees’ retirement money, said investment losses and increased staffing, not benefit increases, are the primary drivers of cities’ increased benefit costs.
“Benefit enhancement is part of the picture. But it’s not a primary driver,” CalPERS spokesman Brad Pacheco said, offering a chart that showed that payroll increases accounted for more than half of cities’ rising pension bills.
Staffing for the City of Alameda, for example, grew from 594 positions in 1993 to 738 a decade later, city budget records show (the city now has 659 positions).
The City Council voted in 2000 – unanimously and without any public discussion – to increase retirement benefits for its police officers and police management to allow them to retire at age 50 with 3 percent of their top salary for each year served instead of the 2 percent they had been getting, minutes of the meeting where the benefit was approved show, with a cap of 90 percent. (The council voted to provide firefighters the same benefit in 2001, meeting minutes show, though in that case they cut and froze positions and trimmed funding in order to pay for it.)
But at the same time city leaders increased benefits, their annual payments jumped from the 9 percent of employees’ salaries they had been paying – the same rate public safety employees pay into their own pensions – to 25.8 percent in mid-2003, a staff report written in 2002 shows. City staffers estimated that the increased value of the benefit the council had promised – $10.2 million for police and $8.6 million for fire – would be paid over 20 years.
A string of retirements of top police and fire officials hit the city in the years after the benefits were raised: All of Alameda’s top 10 pension earners are former police or fire brass, and each of them retired after the new rules went into effect.
Former Alameda Police Capt. Rich McWilliams, who served a stint as acting police chief, retired in 2005 after 30 years on the force, with earnings of $173,370.36 a year, a City Council resolution issued as he retired showed. Former Fire Chief Tim Reilly, who left as the new benefits were put in place, earns $167,770.20.
The new rates allowed some of the city’s top earners to retire with most of their pay intact. Chris Reilly, who’s on the top 10 list, spent five and a half years as a deputy chief at the Alameda Fire Department before retiring in March of 2009. In 2008, he had total earnings of $190,889.16, records obtained by The Island for an earlier investigation and a LinkedIn profile for Reilly show. After he retired, he began earning a pension of $166,926.96, the California Foundation for Fiscal Responsibility database shows, or about 88 percent of what he made in his last full year of work in Alameda.
The average benefit paid to Alameda’s retirees is much lower, though it is growing – and being offered to a growing number of people. Actuary reports supplied by CalPERS show that the pension fund paid an average benefit of $66,486 to Alameda’s 204 public safety retirees for 2009, and that they started taking the benefit, on average, at the age of 63. A year earlier, the fund paid 192 safety retirees an average of $62,623. Some 538 non-safety workers got an average of $16,128 in 2009, up from $15,223 a year earlier for 525 former city workers. They started taking the benefit, on average, when they were nearly 71, the reports show.
Meanwhile, the rates the city pays for employee retirement benefits are rising to cover the losses CalPERS suffered when in the stock market and housing crashes of 2008. The city’s public safety contribution rate is now 31 percent, and forecast to rise to 45 percent by 2015. Other city employees, who get 2 percent of their top pay for each year served, with no cap, can retire at 55; the city pays 13 percent of their salary toward their retirement now, and expects to pay 19 percent by 2015.
The city’s retirement contribution for its top-paid public safety employee – Acting Police Chief Mike Noonan – was $63,383.75 in 2010, or close to 31 percent of his base salary of $155,984 plus specialty pay add-ons. At 45 percent, the city’s annual retirement costs for Noonan alone would be roughly $92,000, or the cost of a full-time police officer or firefighter based on city employee pay records.
For its top non-safety employee, Interim City Manager Ann Marie Gallant, the city made a $31,943.73 payment in 2010. For a police officer who earned roughly $89,000 in 2010, the city made a PERS payment of $29,745.81.
Some 126 current city employees made a base salary of $100,000 or more in 2010, the city’s records show; a little more than half of them, or 68, were public safety workers. Overall, the city contributed $10.4 million toward its workers’ retirement funds in 2010, and the city’s controller, Fred Marsh, expects the city’s bill to rise by $1.75 million this year (though this year’s tab was less than what the city paid in 2008 and 2009).
California Foundation for Fiscal Responsibility president Marcia Fritz said the list of top retirement benefit earners is growing by 60 to 70 percent a year, and faster than the list of public pensioners as a whole. She said the group’s list is littered with city managers who had direct access to policy makers and who helped drive decisions on growing their own benefits. And she said the new benefit rules – allowed by a state legislative change made in 1999 – provided a perverse disincentive for top managers to retire early.
Fritz said that while CalPERS’s investments have recovered, the rate of early retirements and wage increases exceeded what actuaries had predicted.
“You’ve got guys that may have a position for one year. And then they retire at that salary,” Fritz said.
Jeff DelBono, a firefighter/paramedic and the political director for Alameda’s firefighters union, acknowledged there are problems with the pension setup, but he is resisting calls to convert city workers’ current pensions to a 401(k) plan. He said he’s willing to work with the city to save money, but there are a lot of cost-saving concessions workers can’t make unless the state Legislature changes the law to allow them. (He also stressed that his union doesn’t represent the management employees who dominate the city’s top-earning pension slots.)
While he said he couldn’t divulge details of the tentative contract the union has hammered out with the city until his members vote on it, he said one fix could be bigger employee contributions for benefits.
DelBono said other potential cost-cutting moves – including caps on retiree earnings and different contribution rates for existing and new employees – can’t be made at the bargaining table unless state legislators, who set the parameters for benefits, retirement formulas and eligibility ages, change laws that would allow those items to be renegotiated. And other strategies – like raising the retirement age for new hires who haven’t yet been promised a specific benefit level, as existing employees have – wouldn’t save the city any money up front, according to an actuarial study commissioned by the city.
“It’s a statewide problem,” he said.
DelBono said the benefits were added at the height of the dot-com boom as CalPERS was flush with cash, and that they came in lieu of pay raises and firefighting positions that had been frozen in previous budget cycles.
“These benefits were put in place when the economy was going gangbusters and people were earning a lot more money in the private sector,” DelBono said.
Tuesday: Peril is in the eye of the beholder
Wednesday: A brief history