What about the elephant in the room...MB Firefighter pensions?
Letter that addresses pensions.
Dear Subscribers,
In our ongoing series of publications covering the MB Fire Department issue, this edition covers firefighter pensions.
Many of our residents are rightly concerned about the stories of costly retirement plans for firefighters and police officers draining taxpayer funds, and in some cases, bankrupting entire cities. These are valid concerns and questions that need answering.
In an effort to answer those questions for our residents, the following letter was submitted by an MB firefighter/paramedic and VP of the MB Firefighters Association.
We welcome your comments and feedback. Please email MBStrong2021@gmail.com.
~MBStrong
Manhattan Beach Firefighters’ Retirement
Greetings MB Residents,
My name is James Falls and for the past 14 years, I have had the honor of serving the City of Manhattan Beach as one of your Firefighter/Paramedics.
Recently while educating one of our community members on the struggles and shortcomings of the Manhattan Beach Fire Department, I was asked to explain our retirement system. This community member was concerned regarding the solvency and the potential burden it may put on our City and our State to keep our retirement system, CALPERS, in place without change or further reform.
The Bottom Line First
When managed appropriately, the CALPERS retirement system works fairly, equitably, and is a responsible system to provide retirement security to employees who have risked it all for the community that they’ve spent their lives serving. When mismanaged, tax-payers bear an enormous financial burden, and employees are marginalized.
Your Manhattan Beach Firefighters have a long-term, vested interest in the proper management of your fire department, our community resources, and our shared responsibility to ensure retirement security at the end of a long, safe, and well-structured career. Solvency problems, unfunded liabilities, and the costs of mismanagement directly correlate to our city’s ability to deliver on the promise of public safety and our commitment to “leaving it better than we found it” for the next generation of firefighter public servants.
While much of the CALPERS and PEPRA rules and system design are decided in Sacramento, much of the fallout of the current costs rests with the local mismanagement and operational failures of city leadership.
For years we have tried to work with, educate, and inform our city council, city manager, city human resources director, and other city leadership. For years the city council, city manager, city human resources director, and others in city leadership have ignored our warnings, failed to heed our advice, and run headfirst with your tax dollars into a black hole of unfunded liabilities, dead-end career progression, and seemingly city encouraged CALPERS (retirement) benefit spiking.
The “System”
The following is an explanation of the CALPERS retirement system, its history, the good, the bad, and most importantly, actions that can be taken to address concerns regarding it.
Currently, the City of Manhattan Beach is a participating city in the California Public Employees Retirement System, also known as CALPERS. CALPERS was enacted by state law in the 1930s with the purpose, goal, and legislated responsibility of governing the retirement system for California state employees. Legislators later updated the law to allow counties, cities, and school districts to join the retirement system.
CALPERS is a “defined benefit” retirement system, which means upon retirement your retirement payments are calculated based on your salary and years of service on a sliding scale based on when you retire. This defined benefit is clearly laid out in the plan documents and allows employees to fairly predict their retirement security based on their career of service.
This is in contrast to “defined contribution” 401k and Roth-style investment accounts. In these other for-profit and for-a-fee investment-driven savings systems, market performance determines what, if any, retirement withdrawal will be available. There is no security in this type of investment account. Defined benefit systems, however, allow a retiree to understand and set reasonable expectations for their budgets and set monthly retirement payments.
Another important factor to remember is that firefighting is a dangerous, physically demanding, and taxing profession, with a finite span of time an employee can safely serve in such a position. Ensuring that employees are able to safely retire with dignity and financial security after dedicating 25-30 years of their life to the profession is an important component of our community’s safety net.
Employees staying on the job too long, due to unforeseen and temporary market shifts, is a dangerous recipe for firefighter safety, and citizen safety, and creates an unnecessary risk for worker’s compensation injury costs to the city employer.
Understanding the Calculation for the Defined Benefit
Your Manhattan Beach Firefighters who were sworn safety employees and hired before January of 2013 are classified as MBFD classic members. MBFD classic members receive a retirement formula of 3% @ 55. This means if an MBFD classic member retires at age 55, they will receive 3% for each year of service with the city or any other CALPERS agency.
EXAMPLE: If Firefighter Smith was hired at 25 and worked for 30 years, he
would retire at age 55 and be paid 90% or 3 x 30 of their highest years’ salary.
This is the max retirement one can accrue with this formula. MBFD classic members who elect to retire earlier receive a smaller multiplication on the number of years that they’ve worked.
EXAMPLE 2: If Firefighter Smith was hired at 25 and worked for 25 years, he
would retire at age 50 and be paid 60% or 2.4 x 25 of their highest years’ salary.
Age 50 is the earliest an MBFD Firefighter can retire. If they want to retire before age 50, their retirement is frozen, and they cannot draw off it until they reach age 50, or they can elect to take the current balance of their retirement account and reinvest it somewhere else and lose their eligibility for a future defined retirement payment.
While there are many different city firefighters, police officers, public workers, county employees, and school employees enrolled as members in CALPERS, not every member has the same retirement benefit or calculation. In many cases, the calculation varies even for similar employees working for the same city, county, or jurisdiction.
For example, Manhattan Beach Police Officers, who were hired similarly before January of 2013 are classified as MBPD classic members and receive a 3% @ 50 retirement formula. This means that when an MBPD classic member retires at age 50, they will receive the same 3% for each year of service with the city.
EXAMPLE: If Officer Smith was hired at 20 and worked for 30 years, he
would retire at age 50, 5 years earlier than Firefighter Smith, and be
paid the same 90% of their highest year's salary, the same 3% but at 50 years.
EXAMPLE 2: If Officer Smith was hired at 25 and worked for 25 years, he
would retire at age 50 and be paid 75% or 3 x 25 of their highest years’ salary.
Funded vs. Unfunded Liabilities
For decades CALPERS was a “Super Funded,” high return on investment system. Since the system was never for-profit or for-a-fee, excess returns were converted into savings for the participating city, county, or other member employing entity, reducing their payments into the system. After the economic downturn of 2008, the opposite occurred and CALPERS was not reaching their projected rate of returns which resulted in “unfunded liabilities.”
This means that cities, counties, school boards, or the state, much like a car loan or mortgage, owe CALPERS money to make up the difference, and on top of that interest. Some member cities and employers had saved their funds from previous reduced payment years and were quickly able to pivot and manage their rising liabilities.
Some financially fiscal cities had not squandered the savings from “super funded years” and used those savings to pay down those liabilities. Other cities, including Manhattan Beach, worked and passed bonds at a lower interest rate to pay off their unfunded liabilities. This is similar to refinancing a mortgage at a lower rate or moving from a variable term to a fixed loan. This allows cities to not only save money but also allows them to mitigate the risk of those liabilities compounding over the years and growing from inflation costs.
Public Employee Pension Reform Act Changes of 2013
In 2012, the State of California passed the Public Employee Pension Reform Act, also known as PEPRA, which took effect in January of 2013. This resulted in several changes to both employees hired before January 2013, who are now known as the “Classic” employees, and those hired after, now known as “PEPRA” employees.
For the Classic employees, it itemized every pay category which can be considered and utilized to calculate retirement compensation. This allowed both employee and employer to have clear expectations of retirement compensation, as well as retirement contributions based on these expected compensations.
Another thing it did was require the employee to contribute to their retirement. Previously through labor contract negotiations, labor groups could negotiate that the employer pays both employer and employee contribution parts. CALPERS had previously recognized this benefit as part of an employee’s compensation and thus was computed into their highest year. This was called EPMC (employer-paid member contribution) and was eliminated.
Lastly, it put a dollar amount salary cap on defined percentage retirement.
PEPRA employees, which again were those hired after January 2013, were subject to the items listed above for classic members, in addition to a new 2.7% at 57 formula. Their highest year was computed using a 3-year average of compensation, a lower dollar amount salary cap, and a requirement that employees must pay at least 50% of retirement contribution. This new formula requires employees to work longer and reduces their defined retirement benefits.
EXAMPLE: If Firefighter Perry was hired after January 2013 at age 25 and worked for 32 years, he would retire at age 57, 2 years later than Firefighter Smith, and be paid 86.4% of the average of his highest 3 years’ salary (2.7 @ 57).
EXAMPLE 2: If Firefighter Perry was hired after January 2013 at age 25 and worked for 30 years, he would retire at age 55, 2 years later than Firefighter Smith, and be paid just 75% of the average of his highest 3 years’ salary (2.5 @ 55).
EXAMPLE 3: If Firefighter Perry was hired after January 2013 at age 25 and worked for 25 years, if he would retire at age 50, and be paid just 50% of the average of his highest 3 years’ salary (2.0 @ 50).
PEPRA legislation required employees to contribute at least 9% for Classic members and 50% of total employee/employer contribution for PEPRA employees. Today, that contribution is approximately 26% of employees’ pensionable compensation. Overtime is NOT considered nor calculated as part of an employee’s retirement.
PEPRA and the Consequences of Tiers with an Organization
Your Manhattan Beach Firefighters believe that tiering is a bad management policy and an unethical treatment of two otherwise equal employees, doing the same work, with different compensation structures.
To combat that disparity, with actions within our control, your Manhattan Beach Firefighters have utilized our collective bargaining ability to increase the retirement employee contribution for classic members to be the same as our PERPRA members. MBFD classic members today contribute 12% instead of the required 9%, while PEPRA members currently contribute 50% of actual costs which is approximately 13%. It should be noted that it was less than 12% when this was negotiated back in 2012 and your Manhattan Beach Firefighters were actually paying some of the employer’s costs.
These actions represent our commitment to fair, equal, and equitable wages and benefits with ethical treatment and unity as paramount values.
Other Threats to CALPERS Funding
As discussed above unfunded liabilities are the difference between payments made on promised defined benefits and actual market performance of funds contributed. There are also several other contributing factors, but one of the biggest issues is pension spiking.
EXAMPLE: Firefighter Jones was hired as a Firefighter/Paramedic for the City of Manhattan Beach Fire Dept. before January 2013 at age 25 at $100K /year.
- At 26% retirement contribution our classic member, the city is paying $14K/year and employee is paying $12K towards their retirement.
- As years go on, this employee’s salary is expected to rise as the employee sees raises in the form of cost-of-living increases and/or promotions.
- Along with this steady increase, the employee and employer contributions increases.
- Let’s say that this continues over the course of 30 years and eventually this employee becomes a Battalion Chief and is making $180K / year.
- Over the years of promotions, the City’s contributions steadily increase to $28K/ year, and employee $26k/ year.
This growth is factored into CALPERS projects and payments calculations. What isn’t factored in is sudden spikes in compensation for short periods of time.
EXAMPLE: Firefighter Laursen was hired as a Firefighter for the City of Norco Fire Dept. before January 2013 at age 25 at $50K /year. (non-paramedic)
- At 26% retirement contribution our classic member, the city is paying $7K/year and employee is paying $6K towards their retirement
- Although this employee’s salary is still expected to rise as the employee seeks promotions and cost of living increases, it’s at a lower amount than Example 1.
- Let’s say that this continues over the course of 25 years and eventually this employee becomes a Fire Captain (non-paramedic) with the City of NORCO and is making $100K /year.
- He is now contributing at what the employee in example 1 started contributing.
- This same employee now takes a test and is hired by Manhattan Beach Fire Department as a Battalion Chief earning $180K/ year.
- He will then be eligible for the same defined retirement as Firefighter Jones in Example 1, but both the city and Firefighter Smith contributed far less to CALPERS over the years of his retirement, resulting in massive amounts of unfunded liabilities.
This exact scenario is what is occurring in the Manhattan Beach Fire Department, as we have created a glass ceiling for our organization in our Captain Rank.
Battalion Chiefs who have come from other agencies just like the example above, along with the mismanagement of the city, agreed to a contract which gave the Battalion Chiefs at the time a 2% pay raise, while sunsetting longevity pay and other compensation for future members which desire to promote into Battalion Chief rank.
This action resulted in a pay cut for Fire Captains within our Fire Department to promote to Battalion Chief. This solidifies the glass ceiling on the Captain rank, kills succession planning within our organization, and will result in the continued practice of hiring Battalion Chiefs and Fire Chiefs from outside agencies, which come to Manhattan Beach Fire Department for one reason and one reason alone – the money and to spike their retirement.
This past practice creates a toxic environment, where these Battalion Chiefs and Fire Chiefs have one goal to earn one year of pensionable salary. Does that sound like someone that will put the community or department’s interests before their own?
Lack of Promotions Prevent True Reform
If the dysfunction this creates is not enough, from a business perspective, when we hire outside Battalion Chiefs and Fire Chiefs, these have historically been “Classic” members from other agencies.
Of our current 26 Manhattan Beach Firefighters, we have 22 Classic members and only 4 PEPRA members. Ideally, we would be promoting our own members through the ranks and replacing them with new entry-level Firefighter/Paramedics who would come in at entry-level pay and the reformed, PEPRA retirement.
Instead, we keep our members topped out in their pay scales and replace members at the top end with classic members from outside agencies. This prevents the PEPRA reform from taking effect. If we had replaced vacant positions with entry-level employees since 2013 we would have almost half our 26 Firefighters being PEPRA employees, which would have reduced our unfunded liabilities and pension costs for the city.
The Wrap-up
We now must ask our community to join our vocal call for change. Firefighters want a sustainable fire department with succession planning, career development, proper career progression, and to be treated fairly.
We encourage you to visit our website at www.manhattanbeachfirefighters.com and to follow us on Facebook and Instagram. Together we can correct the course, fix the errors, and invest in our future.
Thank you for your time and support.
James Falls
Engineer/Paramedic
Vice President, MB Firefighter’s Association (representing our local Firefighters)
To learn more from the firefighters, watch the video by clicking here.
City Council has several Statements regarding MBFD on the website. Below is an excerpt.
To read the entire Statement by City Council, click here.
“Recently, the MBFA has disseminated communications stating that the City Council has made misleading statements regarding the ongoing labor negotiations with MBFA. Meanwhile, the MBFA continues a widespread marketing campaign that includes misinformation alleging Fire Department mismanagement and a threat to Manhattan Beach fire services staying local. The following information is intended to dispel the notion that there is mismanagement within the Fire Department and assure the community that Council wholly supports keeping Manhattan Beach fire services local now and into the future.” - City Council
What say you, Manhattan Beach?
Email us your letters and comments: MBStrong2021@gmail.com.
Information about running for public office in the November 8, 2022 election:
Residents who desire to serve our city in an elected position can contact the MB City Clerk’s office at mbvote@manhattanbeach.gov for more information.
OR call (310) 802-5056 Monday-Thursday 8:00 AM to 5:00 PM and Friday 8:00 AM to 4:00 PM.
The dates to complete the forms are from July 18, 2022, to August 12, 2022.
Information can be found on the MB city website [HERE].
About MBStrong…
We are MB residents bringing common sense, not politics, to the conversation.
