By Mike Aguirre.
There is a term used by pension actuaries every San Diego City taxpayer should learn: “present value of future benefits.” Pension experts refer to the term with just four letters, PVFB, or PV of FB. The present value of future benefits is the amount of money needed today to fully pay off all pension benefits to city of San Diego employees, both earned and to be earned in the future under the old rules.
We recently learned, after hearing so much talk about pension reform, the present value of future benefits increased last year by $170,000,000, to the staggering sum of $8,230,025,352. In other words, San Diego taxpayers owe the 18,991 people in the city’s pension $8,230,025,352, or $440,000 on average per employee.
As television consumer advocate Mike Turko would say, “That ain’ right.”
The PVFB can be separated into benefits already earned and those to be earned. Taxpayers, like any other employer, should be able to “stop the bleeding” so that no more benefits can be earned under the old rules that were unlawfully put in place. How much of the PVFB is yet to be earned? The answer is $1,054,653,284. We could pave a lot streets, fully open many of the city’s libraries and recreation centers, and employ many of our youth this summer with $1,054,633,284.
But this is only the beginning of the story.
The pension numbers reported by the actuary are quite mysterious. When it comes to benefits, they seem only to go up. For the last several years, we have been told the pension system has been reformed, generating savings to taxpayers. But if that is true, why does the present value of future benefits continue to rise?
The test of any pension reform has to be measured in terms of whether it reduces the growth of the present value of future benefits. But the PVFB has continuously increased from $3.6 billion in 2000 to $8.2 billion in 2013.
The city’s pension was rigged like a slot machine to pay big jackpots to city workers. Double pay, benefit credits not earned or paid for, using pension credits purchased below their cost to count toward the 20-year early retirement, paying salary and pension simultaneously under the Deferred Retirement Option Program, and dishonest inflating of an employee’s final year’s salary to jack up pension levels are just some of the tactics deployed to rig the pension system that grew benefits to $8.2 billion.
The power brokers behind or aligned with the city pension are aligned with both political parties. Pension reformers beat their chests but go silent when the discussion turns to the reality of the numbers.
The pension problem was made by people and can be solved by people. There is no right to receive pension benefits under benefit formulas unlawfully put into place. There is no reason the formula cannot be changed for work not yet performed. The starting point is to understand the fundamentals, like the concept of the present value of future benefits.
Reforming the municipal pension is not only critical to restoring city services and needs. It is also needed to restore long-term health to the city’s pension.
Aguirre, a lawyer in private practice, is a former San Diego city attorney.
Originally published by the U-T San Diego.