CRAIG BOWEN'S SALARY during his final year as chief of the San Ramon Valley Fire Protection District was about $221,000 a year. So how did he end up retiring in December with a tax-advantaged annual pension of $284,000?
The answer provides an amazing case study that highlights problems with public employee compensation and reveals tricks that allow workers to spike their pensions at the expense of their fellow employees and taxpayers.
The Bowen story has some similarities to the case I examined last month of Peter Nowicki, the chief of the Moraga Orinda Fire District who was able to turn his $185,000 annual salary into a $241,000 yearly pension. While each public agency has different rules that provide new ways to take advantage of retirement systems, many of the lessons can be applied across the board.
In Bowen's case, residents of the fire district serving Danville, San Ramon, Alamo, Blackhawk and Diablo should pay close attention because they got shafted. The San Ramon district's flawed compensation system and generous rules for pension calculations allowed Bowen to increase his starting pension from about $193,000 to $284,000 a year — a 47 percent increase. The pension will be increased in future years for inflation.
Bowen was only 51 years old when he retired at the end of 2008. If he or his wife lives another 30 years, that bump-up alone would add $2.7 million in today's dollars to his pension. His total retirement payout for the next 30 years would be worth about $8.5 million in today's dollars — far more than most taxpayers have in their 401(k)s when they hit the half-century mark.
Bowen is a beneficiary of a system that merits closer scrutiny. His devotion to the job is not at issue. By all accounts, he was a hardworking guy during his 29-year career. Indeed, it apparently took a toll on his health.
As he told a reporter in December, a medical condition influenced his decision to retire. In March, the board of the Contra Costa County Employees' Retirement Association, which administers the fire district's pension plan, approved Bowen's request for a service-connected disability.
As a result, under state and federal laws, much of his pension payment is exempt from income tax. Moreover, under state rules, if his wife survives him, she will be entitled to 100 percent of his pension for the rest of her life.
The spousal benefit is part of a public employee retirement system that creates pension payments unmatched in the private sector — a system that is financially unsustainable and is excessively sucking away dollars that could otherwise be used for providing public services.
With that in mind, let's look at the factors that make Bowen's pension so lucrative — and the changes that could be made locally to fix the system in the future.
The fire district, like most police and fire agencies across the state, has adopted the retirement calculation known as "3 percent at 50" — meaning that a worker can receive a pension starting at age 50 equal to 3 percent of his highest 12 months' salary multiplied by the number of years of employment. For example, someone who worked 30 years would be entitled to a pension equal to 90 percent of his salary.
While those pension benefits seemed like a good idea to some people in better fiscal times a decade ago when local governments across the state started implementing them, the time has come to reconsider whether taxpayers can afford to fund them.
There are two key variables in the "3 percent at 50" equation: the number of years worked and the highest 12 months' salary. Here are some of the factors that go into each and some rough estimates of how much they increase Bowen's pension annually:
Unused sick leave ($10,700 a year): In addition to work credit for his 29 years on the job, Bowen received credit for more than a year of unused sick leave. As a result, his pension was calculated as if he had worked 30.3 years. The difference means Bowen will receive an additional $10,700 in his annual pension.
The idea of receiving retirement credit for unused sick leave is generally peculiar to the public sector. It's a benefit public agencies could, and should, end. Sick leave is supposed to serve as insurance to provide compensation when a worker is ill; it shouldn't be a tool to bolster retirement.
Standby and management pay ($14,500 a year): In the San Ramon Valley district, managers don't just receive a salary. They have add-ons. There's "standby" pay that adds roughly 5 percent to the salary. This is extra compensation for carrying a pager and being available 24/7 for emergencies. Also, there's "management" pay that adds another 2 percent. This is for a manager to be ... well, to be a manager.
It seems odd that a fire chief would be paid extra to perform duties that are basic to his job. What makes it worse is that the extra money is added to the salary figure used for pension calculations. In other words, even after the chief retired, he continues to benefit from these perks. They live on for the rest of his, or his wife's, life, adding at the start roughly $14,500 a year to his pension.
Auto allowance ($7,600 a year): A couple of years ago, the fire district offered managers the option of a flat monthly stipend in lieu of a car for the job. Bowen chose the stipend, which was $700 a month when he retired. But the salary figure used to calculate Bowen's pension includes the auto allowance, which adds nearly the full amount to his actual retirement check. He received the auto allowance for only two years while on the job — and now he's going to get it in retirement for the rest of his and his wife's lives.
If the standby pay, management pay and auto allowance seem excessive, that's because they are. What makes them worse is that once the district offers them to employees, it must, under state law, include the amounts in the salary figure used for pension calculations. There is, however, a simple solution: Stop offering the benefits. Then they need not be factored into the retirement calculations.
Administrative leave ($17,000 a year): The chief, like other managers, was entitled to administrative leave — time off in exchange for having to work outside normal business hours. In other words, he was paid extra for the additional hours through standby and management pay, and then offered time off in exchange for them as well.
If the chief didn't use his administrative leave of 80 hours a year, he would receive cash payment for the hours at the start of the following year. Bowen, however, played the system well. In January 2008 he received payment for all 80 hours of administrative leave he didn't use in 2007. And then, when he retired on Dec. 31, 2008, he immediately received payment for nearly 80 hours of administrative leave he didn't use in 2008. In other words, he got two years' worth of administrative leave paid in the same 12-month period, the period that was used to calculate his salary for pension purposes.
Timing here was critical. By waiting until the last day of the year to retire, instead of, say, leaving during the summer, he added thousands of dollars to his annual pension payments. All told, by not taking administrative leave those two years and cashing it out instead, Bowen added about $17,000 annually to his pension.
Administrative leave is a costly and unjustified benefit to begin with, especially considering all the other compensation managers receive. In Bowen's case, doubling it up for the pension calculation just adds insult to the taxpayer's injury. Fire district directors should eliminate administrative leave. Then there will be no need to include it in the pension calculation.
Selling back vacation time ($17,000 a year): The fire district allows employees to sell back unused vacation time up to 80 hours a year. The new policy, implemented for the first time to apply to the 2007 calendar year, requires the sell-back to take place in December of each year.
But for the first year, because of delays implementing the contract, the sell-back took place in April 2008. Bowen sold 80 hours then, and 80 more in December 2008. The proceeds from those sales, in turn, were added to the salary used to compute his pension. Because he was able to sell back twice within the final 12 months of his employment, he doubled the effect on his pension. All told, the vacation sell-back boosted his pension by about $17,000 a year.
Vacation buyback is another unnecessary benefit that should be eliminated. Workers should be told to take their time off. Like in most of the private sector, limits should be set on the amount they can accrue. Once those limits are reached, the worker should, as is the case in most of the private sector, be blocked from accruing more vacation.
Cashing out vacation time upon retirement ($25,500 a year): Finally, there's the unused vacation Bowen had remaining when he took retirement. District policy allows employees to cash out up to a year's worth of unused vacation when they leave. That's what Bowen did. The extra income in his final 12 months had the effect of bumping up his annual pension by about $25,500.
This is the single biggest spike to Bowen's pension. It's also the easiest item to fix for future retirees. The state Court of Appeal has been clear that termination payments need not count toward pension calculations. Public agencies should stop giving away this money.
Let's be clear. Bowen deserves a pension. He worked hard and, by all accounts, he performed well. The question is how much is fair for him and the others who come behind him.
There's nothing the San Ramon fire district's board can do to reduce Bowen's pension now. But his case can serve as a road map for fire district directors, and board members of other agencies across the state, looking to end unjustified spiking and bring some sanity to the public pension system.
Borenstein is a staff columnist and editorial writer. Reach him at 925-943-8248 or email@example.com.