By Ed Mendel
Thursday, April 5, 2012

Regents last week reaffirmed the use of a federal IRS cap on the amount of pay used to calculate UC pensions, an inflation-adjusted $250,000 limit this year that also is proposed in a bill capping the pensions of all new hires in state and local government.

A letter from 36 of UC’s highest-paid executives threatened a lawsuit because UC, allegedly breaking a promise made in 1999, did not lift the cap after federal approval finally came in 2007, the San Francisco Chronicle reported in December 2010.

The demand was criticized by Gov. Brown, faculty leaders and others. The executives issued the threat as UC regents approved a painful plan to begin closing a $21 billion retirement funding gap amid budget cuts, pay freezes and layoffs.

Big pensions were in the spotlight. An inflated-salary scandal had erupted in the city of Bell, the “$100,000 club” list of big pensions on a reform group’s website grew, and huge investment losses fueled debate about whether pensions are “sustainable.”

The UC demand prompted Assemblyman Jerry Hill, D-San Mateo, to introduce legislation requiring all pension funds to use the IRS limit. AB 89 was one of several bills held last year at the request of Brown, who wants sweeping pension reform this year.

Now a two-house legislative committee on pension reform, scheduled on April 13 to hold its fourth hearing, is expected to include a pension cap in its proposed legislation, even though a cap has not been specifically discussed so far.

Powerful unions oppose or are skeptical of Brown’s proposed cost-cutting structural changes: higher employee contributions, delayed retirement and a “hybrid” plan for new hires. But the unions support curbs on salary “spiking” and excessive pensions.

The nonpartisan Legislative Analyst’s Office and others have suggested that the inequity between public and private-sector security, much like rising employer costs, is a threat to the “sustainability” of public pensions.

Public employee unions support moves to bolster private-sector retirement such as Retirement USA. Unions and Democratic legislators back SB 1234 by Sen. Kevin de Leon of Los Angeles requiring businesses to put employees in a “personal” pension plan.

Big pensions can draw attention to the wide gap between retirement security for government workers and the private sector, where an estimated six million California workers have little or nothing in retirement plans beyond federal Social Security.

Leading the 12,199 members of the “$100,000 club” on the reform group’s California Public Employees Retirement System list of retirees receiving pensions of $100,000 a year or more:

Bruce Malkenhorst, Vernon city administrator, $530,268; Joaquin Fuster, UCLA neuroscientist, $314,713, and Donald Gerth, CSU Sacramento president, $295,086.

Topping 5,259 retirees on the California State Teachers Retirement System list: James Enochs, Modesto elementary, $296,555; Fredrick Wentworth, San Joaquin County, $290,485, and Edward Hernandez Jr., Rancho Santiago Community College, $286,396.

The highest of the 1,642 on the University of California Retirement Plan list: George Miller, Lawrence Livermore National Laboratory, $270,075; Thomas Cesario, UC Irvine, and James Holst, UC general counsel, $237,129.

After the Los Angeles Times reported in July 2010 that officials of the small city of Bell were receiving some of the highest municipal salaries in the nation, CalPERS began a system-wide review of high pensions.

The Times reported last August that CalPERS had reviewed 2,250 pensions so far and reduced 329, “mostly because employers incorrectly reported employees’ pay.” No updated information was available from CalPERS this week.

Former Bell city administrator Robert Rizzo, once expected to get a $650,000 pension and a second pension boosting the annual total to more than $1 million, had his CalPERS pension slashed to $50,000, the Times said.

The pension of his assistant, Angela Spaccia, was cut to $43,000 from a projected $250,000. Rizzo and Spaccia have been charged with misappropriation of public funds and related crimes.

In addition, CalPERS, criticized for not sounding an alarm about big Bell pay raises, changed internal guidelines and formed a task force to look at pay disclosure, capping pay used to determine pensions and spreading pension costs among employers.

CalPERS and CalSTRS both say they use the IRS cap on pay used to calculate pension amounts. The pay limit under section 401(a)(17) of the Internal Revenue Code increased from $245,000 to $250,000 this year in an inflation adjustment.

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