1,200 California public pensions exceed IRS limits

Nine years ago Lee McDougal retired as the manager of a small Southern California city and started collecting the pension he earned over 38 years in public service.

Today, his retirement earnings top a list of 1,200 public pensions in the California Public Employees’ Retirement System that exceed federal limits, according to data kept by CalPERS, which administers the plans.

Last year McDougal’s pension was about $337,000 — nearly a third more than the federal maximum for public pensions. The excess portion comes out of his former employer’s annual budget instead of the state’s public retirement system.

Taxes on the above-limits portions of the pensions cost cities and counties extra, consuming taxpayer money that could go toward street maintenance, parks, police or firefighters.

The list of extra-large pensions, which last year totaled $197 million, is growing despite a 2013 change to state law that capped the pensions at the federal limit.

Four years ago, just 684 retirees were on the list, according to CalPERS data. Since the 2013 law applies only to workers hired after Jan. 1 of that year, the list is expected to continue growing for years to come before it eventually tapers off.

Many of the retirees on the list held management positions in cities, counties and special districts that now pay money out of their operating budgets for their pensions. To comply with tax law, the agencies provide benefits above the federal limit by paying the remainder as wages.

“A government’s obligation should end at the federal limits,” said Dan Pellissier, president of California Pension Reform. “If you want to do more, do more, but the government shouldn’t be responsible for subsidizing luxury spending in retirement.”

The 1,200 pensions are outliers among the 596,000 public pensions in the state, which average about $35,000 per year — well below the IRS’ base 2018 limit of $220,000.

“This doesn’t apply to anybody but the highestlevel folks in these organizations, those most responsible for the organizations being fiscally responsible and not taking advantage of the taxpayers,” said Pellissier. Local governments pay In 2018, 774 of the 1,205 retirees on the list had retired from local governments, many from top management positions.

McDougal, 68, is receiving the largest supplementary payment of all the retirees on the list, although his overall pension isn’t the largest CalPERS pension in the state. That designation belongs to Michael Johnson, a former Solano County administrator who gets $402,000 per year.

McDougal said the city of Montclair, which is located between Los Angeles and San Bernardino, boosted retirement benefits during the dot-com boom of the late 1990s.

CalPERS at the time was “superfunded,” with more than 100 percent of what it needed to pay all current and future retirement benefits, and its board supported legislation to increase benefits while giving state and local governments breaks on their contributions.

The bubble burst and CalPERS’ funded status worsened, dropping even further in the Great Recession. But the rich benefits remained, protected by a set of legal precedents known as the California Rule, which doesn’t allow governments to reduce any promised benefits for workers or retirees without offering them additional compensation.

CalPERS, which is now 70 percent funded, has been increasing what local governments pay into the fund to improve the system’s durability for when the next recession arrives.