The recent retirement of the city attorney, Michael Martello, highlights issues with the civil service pension system. According to reports in the Voice, Martello will retire from Mountain View on December 31 and immediately take the reins of the city attorney's office in Los Gatos.
See City attorney Michael Martello is stepping down, Web Link ; Martello takes interim attorney gig in Los Gatos, Web Link
There is some conflicting information about whether he qualifies to receive his pension and simultaneously receive a paycheck from Los Gatos to, in other words, double dip.
Regardless, Martello is an example of how our public service pension system has run amok and is unsustainable. I understand he will take about 80% of his regular salary, which will net him about $180,000 per year in retirement. That is 80% to do nothing or work for another paycheck.
That 80% of the final paycheck rule as applied to the pension system helps to explain why the public pension obligations are so high.
In turn, governments around the state and are having issues meeting those obligations. For example, Vallejo declared bankruptcy last year in large part to decrease its pension obligations.
The pension system was initially designed and intended to provide retirees a reasonable amount to live on in retirement. At this point, it has gone well beyond those modest goals and is unsustainable. Case in point is the $180K annual check paid to Martello from the pension system. It seems excessive, unreasonable, and not sustainable in the long run. Moreover, CALPERS is on the brink of insolvency, is cooking the books to not show its true gains or losses, and is set to face an imminent explosion in the number of retirees it must pay.
CALPERS "has been reporting an expected rate of return of 7.75 percent for the past eight years, and 8 percent before that…. Its annual return during the decade from Dec. 31, 1998, to Dec. 31, 2008, has been 3.32 percent, and last year, when markets tanked, it lost 27 percent." David Evans, Hidden Pension Fiasco May Foment Another $1 Trillion Bailout, Bloomberg NewsService (March 3, 2009).
The pension fund is guaranteed by the state treasury. If the pension fund were to run short for whatever reason, those guarantees would compound the state's already fragile finances.
I am not asking or advocating that we abandon the pension system. I am supportive of the idea of providing pensions. I only ask that pensions be reasonable and the system made sustainable. I consider Martello's pension offensive and an abuse of public resources.
Here are some ideas on how the pension system should operate:
1) Civil servants should be required to work for 35 years in public service and until at least 65 or 70. Martello is 57.
2) The amount must be reasonable. Sorry, but I do not think $180K is reasonable. In this way, the final paycheck rule should be discarded in favor of a graduated percentage that ensures low paid workers can still live off their pension and highly paid workers get enough to live off but not live high on the hog, as Martello will.
3) Pensions should be managed by an independent agency/group that answers to the employees, not government officials.
4) Shortfalls in the pension system should be born by the employees rather than governments. That's why the pension system should answer to employees.
5) Accounting practices need to be standardized and made less misleading.