Santa Cruz Sentinel
written by John Woolfolk
Sunday August 7, 2011
Santa Clara County's housing authority could have spent $16 million of federal funds to help more struggling families put a roof over their heads. Instead, it chose to more than double the value of its employees' retirement benefits.
That may sound unusual, but federal housing officials say it was an allowable expense. Still, the switch from a 401(k)-style retirement plan to a pension allowing workers to retire early -- with guaranteed lifetime payments -- is raising eyebrows at a time when generous public employee pensions are under fire.
The housing authority, which bought into the California Public Employees' Retirement System plan in 2009 after stock markets crashed and the nation plunged into a deep recession, already has seen its pension costs inch up. And more hikes may be coming if CalPERS' financial projections don't pan out, as critics predict.
"At the end of the day the government agency is on the hook for the money," said Dan Pellissier, president of California Pension Reform, a group hoping to get a measure aimed at taming public pensions on the ballot.
Bill Anderson, chairman of the Housing Authority of the County of Santa Clara's board of commissioners, conceded that the money spent on employee pensions could have been used in other ways, including housing aid for low-income families.
Indeed, the waiting list for federal housing assistance is so long that applicants must now wait four to nine years.
Anderson also acknowledged that with the area's high unemployment, the housing authority could fill jobs without a more generous retirement plan. But he said he considered the agency's employees, whose average salary according to CalPERS is $60,730, underpaid compared with other government workers, most of whom have pensions.
"I was very much aware that this was money available for whatever else we do," said Anderson, a retired assistant county counsel. "I thought it was the right thing to do for the employees."
Housing authority workers who under the old plan had to wait until they were almost 60 to draw from retirement accounts -- which could be shrunk by market losses -- can now receive a guaranteed monthly pension check as early as age 50. And they'll have a guarantee of 2 percent annual increases after they retire.
CalPERS records show one 66-year-old former housing authority official already is earning a $40,000 pension.
Most private employers have gone in the opposite direction and dumped pensions for 401(k)s, where employees assume the risk of investment losses in their retirement funds.
The switch comes as the county-chartered housing authority has struggled to patch budget deficits. Last year, the agency laid off 90 workers, and some staffers grumble privately that the new pensions were to blame.
But Anderson and Alex Sanchez, the housing authority's executive director, insist that isn't so, arguing that the laid-off staff worked in a money-losing property management division that had to be cut regardless.
The change in retirement benefits was made possible after the U.S. Department of Housing and Urban Development in 2008 made the housing authority one of 32 Moving to Work demonstration sites. The program allows more spending flexibility to encourage "innovative" approaches that "use federal dollars more efficiently."
HUD spokeswoman Donna White confirmed that buying down employee pension debt was an acceptable use of program funds. [UNREAL!!! Millions are unemployed and losing their homes/apartments and instead of helping these people out, they take care of themselves first!!! So now we'll have more homeless. HOW AWFUL! (emphasis mine)]
CalPERS has a total of 1,543 agency contracts, with seven added in the past year. All were small special districts or other government-related agencies.
Pellissier and others have criticized CalPERS' accounting practices, arguing that they understate benefit costs and overstate investment returns. That, critics say, has kept government employers' yearly retirement bills low while saddling taxpayers with massive pension debt.
Switching to a pension from a 401(k)-type plan in today's climate is "swimming against the river of history," Pellissier said.
To buy into CalPERS, the housing authority in 2009 transferred $11.4 million from its roughly 200 employees' retirement savings in the old plan. It then paid $14.4 million from its Moving to Work operating funds to ensure the pension plan was fully funded.
Unfunded pension liabilities -- the difference between current fund value and the cost of promised benefits -- have led to skyrocketing pension costs for cities such as San Jose, where retirement costs have tripled in a decade and may double in the next four years. Its pension liability is now $2 billion.
Sanchez said that paying down the pension liability up front was a prudent move over the long term to stabilize annual retirement costs, which he argues are now about half what they were before because employees agreed to divert a 7 percent cost-of-living raise to the pension plan.
Even so, the housing authority already has seen a slight increase in its annual CalPERS pension bill. And it would have gone higher had the housing authority not agreed in March to use $2 million in Moving to Work funds to pay off a new unfunded liability after CalPERS revised its assessment.
Pension critic Pellissier said the agency should expect more hikes when new accounting rules take effect.
"They may find that the defined-benefit plan they bought into today," he said, "will have much different prices two years from now."
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