Fort Worth Star-Telegram 2003
Yes, public employees, we know you detest $100K club stories. We hear you when you say it’s a distorted lens on public pension challenges. And that there’s nothing magical — or diabolical —about the number $100,000.
We’re even sympathetic to accusations that we suffer from “pension envy” (guilty as charged).
But we argue that the growth of the $100K club in the gargantuan California Public Employees Retirement System — the nation’s largest — is a canary in the coal mine, signaling stresses on public retirement systems as a whole. These stresses trickle down to Jo Citizen, and thus are a legitimate line of inquiry.
To wit: After more than a decade of skyrocketing contributions to CalPERS from state, city, school and special district governments — and from public workers themselves! — the system still only has 72% of the money it currently owes to public workers.
Who’s on the hook for filling that hole if investments don’t produce what’s needed to pay the bills? Um. You are.
Yes, public employees contribute to their pensions up front. But taxpayers contribute up front and are on the hook for 100% of any funding deficiencies later on, writes David Crane, president of Govern For California and public policy lecturer at Stanford University.
As our local and state governments shovel ever more money into the pension system, those dollars can’t fund services for Jo Taxpayer — like more libraries or repaired pot holes or recreation programs. Critics call that “crowd out.”
“There’s just so much money to go around,” said Fred Smoller, associate political science professor at Chapman University. “If the state spends it on generous pensions, there’s less for other budget priorities. That’s just common sense.”
We haven’t crunched this data since 2019, and a local government-watcher recently prodded us to check on its growth. So we did. Suffice to say it has been huge. HUGE!
(File photo by Frank Bellino, The Press-Enterprise/SCNG)
Up up and away
• Back in 2005, only 1,841 CalPERS retirees collected pensions exceeding $100,000 a year.
• By 2009, the $100K Club had more than tripled, to 6,133.
• In 2013, membership had nearly tripled again, to 16,838.
• In 2018, club membership exceeded 26,000.
• And in 2023, membership nearly doubled yet again, to 51,530, according to data from CalPERS.
You can chalk this up to uber-generous pension formulas (particularly for public safety types) approved by your elected officials when the stock market was booming in the early 2000s, as well as to generous pay packages.
It may be fitting that the most well-paid CalPERS retiree was the erstwhile director of CalPERS’ investments, Curtis D Ishii. He retired in 2018 after more than 45 years of service, and drew benefits of $444,295 last year.
Next up was Michael D. Johnson, erstwhile administrator for Solano County, who retired after nearly 43 years of service. He drew benefits of $404,307.
(iStockphoto)
All told, there were just those two with benefits over $400,000 a year. There were 19 people getting $300,000 to $400,000 a year; another 1,782 with benefits between $200,000 and $300,000 a year; and 49,727 with benefits between $100,000 and $200,000 a year.
Other findings of note:
• Total benefits paid by CalPERS more than doubled between 2012 and 2023, from $14.4 billion to $30.2 billion.
• The number of folks receiving benefits between 2012 and 2023 leaped 63%, from 483,902 to more than 790,500.
• The average for all retirees and their survivors/beneficiaries was a bit more than $38,000 a year. But that hides big variations.
• Old-timers — those who retired between 1956 and 1981 — got a measly $16,749 on average.
• Folks who retired from 1982 to 2002 got $25,328.
• Folks who retired from 2003 to 2023 averaged $40,636.
• Public safety types — such as police and firefighters — had much higher pensions than regular retirees, averaging $64,279 last year.
But police and firefighters who worked for cities, as opposed to the state, had the highest, averaging $75,125.
Public safety types who worked for the state averaged $55,821.
File photo, Bruce Malkenhorst
We were most curious to see how Bruce Malkenhorst — once the poster boy for public pension reform — was faring.
Malkenhorst, of Huntington Beach, was once the highest-paid retiree in the entire CalPERS system, pulling down more than $551,000 a year. How? From his service to the small, strange city of Vernon — where he was city administrator, finance director, redevelopment director, city clerk, city treasurer, head of the municipal light and power operation, etc., pretty much all at the same time.
CalPERS paid him that princely half-million-dollars for years until a closer examination — prompted by the public release of CalPERS’ pension rolls and Malkenhorst’s guilty plea to felony misappropriation of public funds — suggested that sum might be grossly inflated.
After legal wrangling, CalPERS slashed Malkenhorst’s pension to a wee $115,000 a year. It grew with annual cost-of-living adjustments to $137,869 in 2021. But then something strange happened: It nearly doubled, to $227,155, the following year. In 2023, it grew to $252,663.
We’ve asked CalPERS to explain. We’ll let you know when the mystery unravels.
No crisis
Pension costs for local agencies may rise — but don’t buy doomsday scenarios. There’s no real danger to California’s public pension systems themselves.
Because, as we mentioned, taxpayers guarantee them.
California courts have ruled that the retirement benefits promised to public workers on the day they were hired are etched in stone. They can’t be reduced, even if governments sag under their weight.
It can be argued that governments are sagging under their weight.
The state paid $4.3 billion to CalPERS in 2016. That bill has climbed to $7.7 billion this fiscal year, according to the state budget.
Ouch.
All CalPERS’ member agencies combined — cities, school and special districts, the state — paid a total of $15.6 billion to CalPERS in 2019 — and $24.2 billion in 2023, according to CalPERS data.
Ouch.
Public workers are feeling it, too: They kicked in $4.7 billion from their own pocketbooks in 2019 — and $5.7 billion in 2023.
Ouch.
It’s hard for Jo Citizen to see the toll of all this directly. It may surface as an urgent plea for an extended utility tax, or a higher sales tax. As a reduction in city hall service hours, or a hiring freeze. As cuts in this or that part of an unbalanced state budget.
The scenario is much like Orange County’s bankruptcy, really. (County loses $1.6 billion on Wall Street. County issues $1 billion in bonds to repay investors. County spends $1.5 billion to repay those bonds over the next 20-plus years.) But who really notices? It’s a phantom disaster, consuming some $60 million a year that might have funded street improvements, libraries, health care and myriad other public services. The impact is a ghostly one, measured in shadows of what might have been.
Pension relief is allegedly afoot. Pension reforms for new hires, pushed through by then-Gov. Jerry Brown in 2013, are supposed to start bearing fruit in coming years. Tremendous increases in what public agencies must pay are supposed to start leveling off.
But voters — and their local and state elected officials — must understand that the pay raises they grant to public workers today increase everyone’s pension burdens tomorrow. And pie-in-the-sky assumptions about meaty investment returns (that will never materialize) do the same.
Crane, of Stanford and Govern for California (and, incidentally, a registered Democrat who served then-Gov. Arnold Schwarzenegger on the California State Teachers’ Retirement System), pushed for “realistic investment return assumptions” that would have forced higher upfront contributions from agencies and workers.
But, under union pressure, the state Senate removed him from CalSTRS’ board in 2006, Crane writes. “And because CalSTRS and its sister state pension fund, the California Public Employees’ Retirement System, continued to use unrealistic assumptions, taxpayers are saddled with nearly $270 billion of expensive unfunded pension liabilities.”
Guess who’ll be on the hook for that?
