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Sonoma County employee perks pay off in retirement

Published: Monday, August 20, 2012 at 12:21 p.m.
Last Modified: Monday, August 20, 2012 at 12:21 p.m.

Shortly before he retired in early 2011, Sonoma County Supervisor Mike Kerns had been making an annual salary of $134,097.

But the county pension that he now receives is based on a much higher figure, his final earnings of $174,857.

The 30 percent boost came from Kerns cashing out $12,850 in accrued administrative leave and the inclusion of nearly $28,000 in other non-salary pay and benefits the county owed him.

Kerns worked 12 years for the county, so his annual pension of $53,542 is not one of the six-figure payments that has fueled public outrage over county retirement benefits. But like the top earners getting those pensions and hundreds of other former county employees, Kerns benefited from a system that allows workers to increase their retirement checks by including a wide range of pay and benefits outside of salary.

He makes no apologies.

"You play by the rules," he said. "I don't begrudge anyone taking what they have coming to them. ... If people find that objectionable, then maybe they need to change the rules."

County pension costs are up more than 400 percent since 2000 and the average annual compensation on which pensions are computed has risen 75 percent during that time to nearly $92,000 for workers retiring in 2011.

The Board of Supervisors, in charge of setting benefits for a retirement system they acknowledge is unsustainable, has made no changes despite public outcry that bloated pensions are compromising essential public services.

But last week, they indicated add-ons like the ones that raised Kerns' pension would be high on their list of fixes. They proposed to eliminate some and exempt others from retirement calculations. Supervisors also proposed to cut pay and make longer-range pension changes, including setting lower benefits for future hires. The moves won't take effect unless unionized employees agree.

A Press Democrat analysis shows that when they retire, Sonoma County government workers boost their final earnings, and thus their pensions, by an average of more than 12 percent over their annual salaries. The average increase for sheriff's deputies and other public safety workers is higher, more than 14 percent.

The boost over salary has been as high as 46 percent, according to the analysis of pension records for thousands of former county and special district workers obtained by the newspaper after a protracted legal fight.

Top earners, including elected officials who authorized higher pension benefits a decade ago, have boosted their retirement payments by as much 30 percent over salary.

County officials insist they are well aware of how the extra pay and perks factor into the rise in taxpayer costs.

"What's a story to you is not news to us," said county Administrator Veronica Ferguson. "The impact of these things — we understand that. We've got our arms around it and we're trying to reduce that."

The extra pay and perks are little known to taxpayers but wind up on the retirement bill for county employees.

The boost in final earnings comes in one part from end-of-career moves known as pension "spiking," including cashouts of unused vacation and other types of leave.

The other part of the boost comes from non-salary pay and benefits received throughout a county employee's career. Those include training and shift incentives, car and cash allowances and benefits such as county contributions to deferred compensation retirement accounts.

"It's compensation to employees the public doesn't necessarily see," said Jon Holtzman, a San Francisco attorney who specializes in public-sector compensation. "It's not very transparent."

The extra compensation does not show up in published salary reports and is only partly monitored by county pension officials. They track leave cashouts, but haven't regularly distinguished between salary and other types of side pay and benefits.

Sonoma County pension records reveal that the extra pay and perks go to nearly all levels of government workers, with some of the most lucrative benefits reserved for management.

For department heads and elected officials, the boost can include leave cashouts as high as $19,000, an auto allowance of $5,000 to $8,000 and county-paid deferred compensation totals that have run as high as $10,000.

For rank-and-file workers, it can include more than 100 categories of premium pay, received on top of salary for certain job skills, shifts and assignments. Bomb removal, bilingual work and dead-animal disposal, for example, all get premium pay.

Intermediate and advanced accreditation for public safety officers earns them 2.5 percent to 5.4 percent more, respectively, on their hourly salary rate. Differentials for off-hour shifts can add more: up to 17 percent on hourly rates for some workers, all of it pensionable.

The extra pay and perks have drawn fire from fiscal watchdogs concerned about the long-term strain on government budgets.

"These spiking gimmicks are simply raiding public funds and diminishing public services," said Steven Greenhut, a senior fellow with the Pacific Research Institute, a conservative San Francisco-based think tank. It has estimated that pension spiking costs California taxpayers $100 million a year.

"It's undermining public trust in the system," Greenhut said.

Sonoma County pension costs are estimated at $94.3 million this budget year, including payments on pension bond debt. That is 19.28 percent of the county's total pay and benefit spending.

The pension system's long-term underfunding is $353 million, with assets reported at $1.87 billion.

Pension officials point to projections they make about the impact of spiking, thus making sure the county and employees contribute enough to cover the higher retirement payments.

Still, the exact impact of the extra compensation on individual pension payments and taxpayer costs has long been unclear, even to many county officials.

County pension officials consistently refused to release records that would shed light on the extra costs until The Press Democrat successfully sued the retirement system for access to the data in 2010.

As part of a settlement stemming from the lawsuit, county pension officials earlier this year turned over detailed information showing final compensation and annual pensions for 2,235 pensioners who entered the county retirement system between 2000 and February 2012. Overall, retired members in the system number just over 4,100.

For 564 pensioners who entered the system since the start of 2010, the breakdown is more detailed. For data on the rest, the retirement association charged The Press Democrat about $8,500 to generate records the system did not have.

Rise in 'final compensation'

The information shows the extra pay and perks have helped fuel the sharp rise in what retirement officials call "final compensation," which is workers' highest single year of earnings and the amount used to compute pensions. It is up 75 percent since 2000, to an average of $91,956 for those who retired in 2011.

Over the same period, the average pension for new retirees rose 107 percent, to $48,269 for those who retired in 2011. For career employees — those with at least 20 years of service — the rise was 109 percent, to an average pension of $74,007.

End-of-career cashouts alone added more than $1 million, or more than 4 percent, to final earnings for the 261 county and special district workers who retired in 2011, records show.

Pension-eligible premiums, allowances and benefits — the ongoing forms of compensation outside of salary — together added about $2.2 million, or 9 percent, to final earnings for the 2011 retirees.

Safety workers benefit more from spiking moves, data for the past two years show. They added 6.4 percent on average to their final earnings through cashouts of accrued leave. The average spike for all other workers was 4.2 percent.

And higher earners benefit most, adding an average of 6.7 percent to their final earnings through cashouts versus the 2.9 percent average spike for those with final compensation of less than $100,000.

The discrepancy between the two income levels shrinks when premiums, allowances and pensionable benefits are added to the cashouts, with high earners adding on average 14.5 percent on top their salary versus 11 percent for lower-paid workers.

The average 4 percent to 6 percent spiking figures for Sonoma County are not as high as other county systems around the state, where cashouts and other end-of-career moves average as high as 24 percent.

Sonoma County retirement records do not reveal other ways of boosting pensions, including final-year salary hikes of 5 percent, which the county offers to appointed department heads in exchange for at least a year's notice of their retirement.

Another maneuver, a final-year switch by top officials from use of a county car, a perk that is not pensionable, to a car allowance that is pensionable, also was not evident in the retirement records.

Landmark ruling on pensions

In California, the practices that allow government workers to boost pensions have been most generous in the 20 county-run pension systems, including Sonoma County's.

CalPERS, the giant state employee pension system, which also controls benefits for many cities, banned pension spiking in 1993.

For counties, the situation evolved over decades, as side pay and benefits were offered to recruit and retain workers, and slow the pace of salary increases.

In a landmark 1997 decision, the California Supreme Court ruled much of the extra compensation pensionable.

The ruling was a bombshell for counties, experts say.

"That's what really set these systems off into deficits," said Harvey Leiderman, a San Francisco attorney who advises a number of local government pension systems, as well as the state systems CalPERS and CalSTRS.

Stock market losses, especially those in 2008, and the enhanced pension benefits authorized in 2002 by the Board of Supervisors, have proved the dominant factors in underfunding for Sonoma County's retirement system. The enhanced benefits, combined with higher salaries, are also the major driver of soaring average pension payments in the past decade.

But records show that the wider range of pay and benefits has played a significant factor in the county's pension-cost woes.

The ballooning cost is evident in individual cases.

Kerns' $53,542 county pension, for example, is more than twice what his predecessor, Jim Harberson, receives for his 14 years representing the south county.

The difference? Kerns retired from the county under an enhanced pension formula he voted for. He also had a higher salary and more add-ons than Harberson had.

Kerns, a longtime Petaluma police sergeant, also gets a city pension to bring his annual public retirement pay to $105,463.

The top boost in final earnings, at least for the past two years for which records are more detailed, belongs to Michael Knappman, a physician's assistant with nearly 15 years in the county health department. When he retired in late 2010, Knappman saw his final annual compensation jump by 46 percent over his salary, to $179,749.

The increase was largely the result of $45,185 in standby and premium pay Knappman earned as a forensic examiner responding to sexual assault cases.

He said the long hours and extra pay were not something he manipulated but the result of understaffing in the all-hours unit.

"I had no choice," he said of the off-hours work. "It was excessive. It led me to leave."

He gets a pension of just over $78,000 per year, but he is back working part-time for the same county unit, without benefits and without the long, required on-call hours.

The sexual-response unit remains understaffed, he said. And it could prove an example of the challenges facing county leaders in their overhaul of employee pay and pensions.

Knappman said the staffing problems are likely to continue without an increase in on-call pay — the opposite direction county leaders are now pursuing.

"It's an important service we're providing," he said. "(But) people aren't breaking down the door to do this kind of work."

Taxpayer outrage

Sonoma County pension officials are tight-lipped about how they see the extra pay and perks affecting taxpayers' costs.

They point to assumptions they make on leave cashouts, anticipating that public safety workers will add 6 percent to their final earnings and for all other workers about 4 percent. The figures are in line with what The Press Democrat found in its analysis. They translate to a roughly $6,000 spike for public safety retirees and a $3,300 spike for all other workers, records show.

"We anticipate it and work to prefund it," said Gary Bei, administrator of the Sonoma County Employees' Retirement Association.

For taxpayers, however, who have been left to rescue public pension systems in the wake of stock market losses, reports about the last-minute increases can trigger further outrage.

The blowback is fueled in part by the growing lack of retirement security for private-sector workers, who've seen guaranteed pension benefits largely eliminated in recent decades and private retirement accounts tank in the stock market freefall.

It is also fueled by concern about continued erosion of public services, as Sonoma County and other local and state governments grapple with stagnant tax revenue and rising payroll costs.

Generous pension benefits are at the center of that math problem.

"If you care about government services, you ought to care about what's happening to pensions," said Holtzman, the San Francisco attorney who is advising the cities of San Jose and Stockton on overhaul of their pension systems.

Sonoma County's pension costs are set to climb to nearly 21 percent of total payroll in 2015, according to the county. It's a rise that's prompted all members of the current Board of Supervisors to call the system unsustainable.

Even Kerns, the former supervisor who benefits from a system he helped shape, shared his unease over past pension decisions.

"I have to look back and say, 'Logically, was that the right thing to do?' " he said. "In the future, I think we need to be more cautious and conservative about those decisions."

(You can reach Staff Writer Brett Wilkison at 521-5295 or brett.wilkison@pressdemocrat.com.)

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