IF YOU WANT an example of public employee pensions mushrooming out of control, consider the case of Berkeley City Manager Phil Kamlarz.
His story shows how a state plan a decade ago to boost retirement packages for firefighters and police officers actually affected most government jobs across California, not just public safety workers. In Kamlarz' case, he is now set up to earn more each year in retirement than the governor of California is entitled to annually while on the job.
Kamlarz, a 34-year veteran, is still working — and is highly regarded by most in city hall as well as by the city council. He started out in 1975 as an associate accountant in the Berkeley Library Department and has worked his way up, eventually becoming acting city manager in 2003 and receiving the permanent appointment in 2004.
As I reported recently, when it came time to approve his salary increase in January, Mayor Tom Bates said the raise was necessary to keep Kamlarz because he could otherwise retire and make the same money. "He's actually working as a volunteer," Bates said.
While much has been written about the lucrative pension benefits for public safety workers — firefighters and cops — that have led to retirement near full salary, Kamlarz' situation shows how other employees can also walk out the door without losing a dime.
The genesis of the benefits dates back to 1999, when Gov. Gray Davis and the Legislature approved raising pensions for the California Highway Patrol to "3 percent at 50" — that is, pensions equal to 3 percent of salary for every year worked starting at age 50. For 30-year veterans, that's annual payments of 90 percent of salary for the rest of their lives.
Once state public safety workers secured the benefit, local cops and firefighters screamed "me too." Within a few years, hundreds of local city councils and county boards of supervisors caved to the political pressure. The justification was that public safety workers deserved the generous early pensions because they were putting their lives on the line.
Soon, other government employees wanted pension increases, too. In Berkeley, for example, after pensions for firefighters were bumped up in 2000 and police in 2002, explains David Hodgkins, director of Human Resources, "there was an issue of fairness" for other city workers. In 2003, they were granted a whopping 35 percent increase in pension benefits from "2 percent at 55" to "2.7 percent at 55" — 2.7 percent of salary for every year worked for those who retire at age 55.
The credit for each year worked wasn't quite as sweet as the deal for cops and firefighters. But for long-term workers, it could actually be a better deal. That's because the benefit for public safety workers usually caps out at 90 percent of salary. But there usually is no cap for other workers. Thus, someone who works 37 years, essentially their entire career, could collect 100 percent of salary upon retirement.
There are some other key points about the numbers that make them especially lucrative for employees and costly for taxpayers. These are points that generally apply to all public employee pensions.
First, the increases granted in the early part of the decade were retroactive. Thus, the increase for non-safety employees in Berkeley gave them 2.7 percent of salary not only for each future year but also for each year they had already worked. It was a huge windfall for all workers at the time, especially those close to retirement.
Second, the salary used for computation of pensions is not just an employee's base pay. It also includes a long list of items such as longevity pay, annual bonuses if they're given regularly, and extra compensation for having met certain educational requirements. All of those items are added in to what is considered salary for purposes of figuring out a pension.
Perhaps most significantly, "salary" can include some contributions to the pension system. Usually, to finance the retirement payments, the public agency and the employee are each required to make regular contributions to the pension plan. But many jurisdictions, including Berkeley, pay the employees' share for them.
Thus, in Kamlarz' case, like that of other non-safety workers in Berkeley, the city each month picks up the employee share equal to 8 percent of salary. But when it comes time to calculate Kamlarz' retirement, that 8 percent will be added to his salary. It's a sweet bump up. Not only does the city pay his share of pension contributions, he gets the credit for it when it comes time to retire.
Third, recall that Kamlarz worked his way up the ranks. He started at a salary of $12,720 a year. But his pension is calculated as if he was earning his top salary, which is now 17 times as much, all those years. Some pension plans at least average the best three years, but most in California use the single highest year.
So let's apply all this to Kamlarz. It turns out that the mayor was right: Before the city manager's salary increase in January, he was essentially working for free. His salary, with longevity pay, was about $221,000. His pension, if he had walked out the door that day, would have been 99 percent of that, or about $219,000. (For the record, the governor's current official salary is $212,179, although Arnold Schwarzenegger works for free.)
The council's answer to keep him on the job was to give him a raise — actually five raises over three years that cumulatively will increase his salary by 17.5 percent. The result is that by the end of 2011, he will be making about $260,000. He will have even less incentive to stay on the job then, for if he retires, he will take home a pension of $280,000 a year, or roughly 108 percent of his salary.
There might be a temptation to write this situation off as an anomaly. After all, Kamlarz is the city manager. But, in fact, the same calculation principles apply to all non-safety Berkeley city employees, albeit the salaries aren't as large.
Indeed, the principles apply to many public sector employees across the state. This isn't a situation unique to Berkeley. About 260 cities and special districts that are members of the California Public Employees' Retirement System now provide 2.7 percent at 55 for their workers.
In the East Bay, cities offering the benefit include Brentwood, Dublin, El Cerrito, Oakland, Pleasanton and Richmond. The lucrative pension benefit is also provided to employees of the Mountain View, Delta Diablo, Ironhouse, East Contra Costa, Dublin San Ramon and Castro Valley sanitary districts.
The big question is how to pay for it. Some cities have started to realize that it is unsustainable. That's because pension systems depend on stock market profits for sufficient funds to pay retirees. "If you have a stock market that's returning 8 or 9 percent, it's sustainable," says retired Walnut Creek City Manager Don Blubaugh. "We're learning the hard way that's not the way the market works. ... Nobody has cared until recently."
I wanted to ask Kamlarz what he thought of Berkeley's pension costs and the sustainability of public employee retirement benefits generally. Through the city spokeswoman, he declined to answer my questions.
Borenstein is a staff columnist and editorial writer. Reach him at 925-943-8248 or firstname.lastname@example.org.