Contra Costa County's retirement system overpays about 10 percent of those collecting public pensions, "and the taxpayers must make up the difference," the Contra Costa Times reported June 18. According to Paul Angelo, vice president of the Segal Company – the retirement system's actuary – 17 other county-level pension systems use the same calculation method.
The problem stems from an optional payout system, giving more to survivors than the standard retirement payout.
Under the option, retiring employees can choose smaller payments, but upon their death, the monthly benefits will be passed on to designated survivors – who can be a spouse, domestic partner, child or non-relative. According to the paper, the actuary must determine how much to reduce the current pension to fund the increased payment to survivors, and the calculations don't account for cost-of-living increases.
As a result, the payments to the current retirees have not been reduced enough to fund the election of the larger amount for survivors. The value in today's dollars should be the same if the employee chooses the standard retirement or optional system, but it is not.
For example, if a 57-year-old retiree has a 27-year-old beneficiary, the pension payments to both will be 12 percent higher than if the cost-of-living adjustment had been factored into the payments. The younger the surviving beneficiary, the greater the payment.
This practice, which has been in place for decades, was discovered when Mr. Angelo submitted calculations for a retiree to the pension board and Trustee Debora Allen noted that the assumptions included no cost-of-living adjustments. Ms. Allen is a new trustee who also is a certified public accountant.
According to Mr. Angelo, the 17 other systems not considering cost-of-living adjustments when computing the optional retirement payments are: Alameda, Fresno, Imperial, Kern, Los Angeles, Marin, Mendocino, Merced, Orange, Sacramento, San Bernardino, San Mateo, Santa Barbara, Sonoma, Stanislaus, Tulare and Ventura. (Source: Contra Costa Times, June 18.)
June 22, 2012
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