Deferred Compensation, the Preferred Compensation

In its simplest form, deferred compensation is a benefit paid after services are rendered. 

It’s an interesting concept; paying someone today for services performed and then paying them again at some later date for those same services already rendered.

With that in mind, let’s look at what we might pay one of our public safety employees who retires at age 50 with 30 years of service and the “3%@50” defined benefit.  We’ll call her “Sara”.

For the sake of discussion, Sara will die of old age on her 85^th birthday which means she will receive her pension for 35 years. 

If Sara was paid $124,730 for her last year’s employment, she will receive $112,500 for those 35 retired years. 

Her pension check alone will cost taxpayers $3,937,500 after she has stopped rendering services to the City assuming she does not get cost of living adjustments which our current public safety retirees enjoy.  We have also excluded the lifetime medical benefit as well.

When she dies at 85 she will have received $6,695,940 for her 30 years of service (not including medical or pension COLA).

That would be the same as if taxpayers had paid her $223,198 for each of her 30 years of service.  Of course she started at $65,000 per year and never received a stepped increase in pay, only cost of living adjustments valued at 6% her first year and 2% for most years after and still was able to earn $124,730.  Not bad for no promotions.

The entire notion of deferred compensation has me convinced we are handling pensions completely wrong.

I see two possible ways to deal with this.  We could pay higher salaries now and let the employees figure out the best investment plan for their future (think 401-K) or workers will need to be productive for 40-50 years instead of 30 years.

Forbes: The Millionaire Cop Next Door

Forbes blogger Rich Karlgaard wrote a provocative article on police officer pensions.  I'll leave you with his opening thought:

It is said that government workers now make, on average, 30% more than private sector workers. Put that fantasy aside. It far underestimates the real figures. By my calculations, government workers make more than twice as much. Government workers are America's fastest-growing millionaires.

To read the article in it's entirety, click HERE.

George Will and Public Employee Pensions: Trickle-Down Misery in L.A. - Mayor Villaraigosa's nightmare numbers

"Nationwide, government employees are most of what remains of 'defined benefit' America. More than 80 percent of government workers have defined benefits—as opposed to defined-contribution—pension plans. Only about 20 percent of private-sector workers have defined-benefit plans. California's parlous condition owes much to burdensome health-care and pension promises negotiated with public employees' unions, promises that are suffocating the state's economic growth."


Read the entire column at http://www.newsweek.com/id/237640.

The pension noose is around our neck as we wait for the baby boomers to retire from their public employment and cash in their unfunded pension plan.  Can we get the noose off before they cash in?  I doubt it...

The United States Code, Public Employees' Oath of Office, and Pensions

TITLE 5, PART III, Subpart B, CHAPTER 33, SUBCHAPTER II, § 3331

§ 3331. Oath of office
An individual, except the President, elected or appointed to an office of honor or profit in the civil service or uniformed services, shall take the following oath: “I, AB, do solemnly swear (or affirm) that I will support and defend the Constitution of the United States against all enemies, foreign and domestic; that I will bear true faith and allegiance to the same; that I take this obligation freely, without any mental reservation or purpose of evasion; and that I will well and faithfully discharge the duties of the office on which I am about to enter. So help me God.” This section does not affect other oaths required by law.


Do public employee union members violate this oath when they cash in their pensions knowing full well the impact that their unfunded pensions are having on the governmental agency which they were employed with? 

Cal State Fullerton’s Pension Tsunami Shell Game and Our Kid’s Future

Titan waste

After showing you how management lives in the lap of luxury last week, I received an email from a Friend who brought to my attention a Cal State University system business practice that forces out qualified, lower paid part-time lecturers and untenured faculty, and brings back higher paid, semi retired faculty. The faculty and management at our own Cal State Fullerton know this practice as FERPing. Just the sound of the acronym sounds like something they should apologize for and we haven’t even said what exactly FERPing is.

The Faculty Early Retirement Program, as the name implies, allows faculty to retire early and then come right back to work. On the surface it creates a lower fiscal burden on local university funding which looks like a cost savings for guys like Milton A. Gordon, who gets $302,042 per year while living rent-free at the El Dorado Ranch. The reality is that it costs tax payers and students statewide more than utilizing the lower paid part-time faculty who, under FERP, are forced out.

Retirement never looked so lucrative. While everyone else must take furloughs or are getting laid off outright, the FERPers receive FREE parking, ALL of their retirement benefits, and 50% of their last salary. That’s part of the reason why your kid’s tuition continues to rise and classes are getting cancelled. This Cal State double-dipping program is brought to you by the public employee unions as a result of the spineless leadership who is content to live in their rent-free mansion with an inflated salary and the entitlement attitude of senior public employees. Some FERPers have been milking us for more than 5 years!

Here is an example of the compensation structure that FERPers use to determine just how good retirement might be:

Age: 63 1/2 years (CalPERS retirement age percentage factor: 2.5%) Length of Service: 27 years

Highest Salary: $87,500 (during any 12 month period of CalPERS covered employment)

(minus $133.33 monthly deduction for Social Security = $1,599.96)

Calculation: 27 years x .025 (age factor percentage) = 67.5% of highest salary

Estimated CalPERS retirement salary: $85,900 x .675 (age factor percentage) = $57,982

Plus estimated FERP salary: (half of faculty base $70,800) $35,400

Total estimated retirement salary plus FERP salary: $93,382

It’s time to wean the leaches off our sweet cream before all we are left with is sour cream for our kids. Email Milton Gordon at mgordon@fullerton.edu or you can call him in his CSUF public employee office at (657) 278-3456. Tell Milton Gordon it’s time to act fiscally responsible with our tax dollars.

Below are some links I stumbled over which helped put FERPing in perspective for me:
http://www.fullerton.edu/Emeriti/preretirement.htm
http://collegelife.freedomblogging.com/2009/08/13/cal-state-fullerton-abruptly-begins-canceling-classes/7103/
http://www.calstate.edu/csuleader/2004/040511.htm
http://www.csufresno.edu/aps/forms_policies/retirement_ferp.shtml
http://www.csulb.edu/divisions/aa/personnel/retirement/ferp/