Moorlach’s Folly: It Just doesn’t add up.

Over at The Tin Star Blog Sergeant wrote a couple of days ago (Thursday) about Supervisor Moorlach’s invention of a “Pension Spike” for Orange County Deputy Sheriffs.  While he agrees that there was an increase in the overall pension liability he makes a good point that Moorlach’s examples are more hype to promote his plan than reality facing the taxpayers of Orange County.

The more I look at this stuff here, here, and here, the more skeptical I become.  It seems to me that Moorlachs’ scheme is far more risky than he makes it seem and the Board should really consider the implications if the scheme were to fail.  The Orange County Taxpayers could be stuck with millions of dollars in litigation costs, probably doubling the $3.3 million spent in 2006.

Here is what Sergeant had to say:

Moorlach invents a pension spike

Supervisor John Moorlach wants the Board of Supervisors to approve his plan to take legal action against the 3% @ 50 pension benefits the county law enforcement earned and were granted to them by the County of Orange through collective bargaining contract negotiations in 2001.

Supervisor John Moorlach calls the 3% @ 50 pension benefit a “pension spike” because the “old pension formula” was a 2% @ 50 formula and the difference between the two different formulas equals a 33% increase in a deputy sheriff’s pension which was then applied retroactively to all active service deputy sheriff’s — thus labelled by Moorlach as a “pension spike.”

Supervisor Moorlach claims that the “pension spike” was unconstitutional and should be voided because the increased cost associated with the “pension spike” was unlawfully agreed to during the 2001 collective bargaining process between AOCDS and the County of Orange, which was later ratified unanimously by the Board of Supervisors.

WRONG.

Supervisor Moorlach is wrong about the “pension spike” because the majority of deputy sheriffs DID NOT receive a 33% increase in their monthly pension benefit as a result of the 3% @ 50 benefit.

WHY?

The “old pension formula” was called a 2% @ 50 benefit BUT had an escalator built into the formula that increased significantly between the age 51 and age 55. During those years a deputy sheriff earned as much as 5% per year of service and at age 55 the formula could really be called a 2.6% @ 55 pension formula.

Only deputy sheriffs that retired at age 50 get the 33% increase in pension formula!

Most deputy sheriff’s DO NOT retire at age 50.

The average age of a deputy sheriff at the age of retirement is closer to 55 years old which means that MOST deputy sheriffs retired during the escalation period and their “pension spike” than the 33% increase called a “pension spike” by Supervisor Moorlach.

SO WHAT?

Because the magnitude of the problem will be different!

The so-called “debt” caused by the “pension spike” to the County of Orange general fund and the impact upon the “funded status” of the retirement system will be SIGNIFICANTLY different if BAD NUMBERS are used as in the “garbage in and garbage out” concept.

In other words, the actual cost of applying the 3% @ 50 pension formula in a retroactive manner to all members of county law enforcement could be SIGNIFICANTLY less that the numbers used by Supervisor Moorlach to create his “pension crisis.”

SHOW ME.

Supervisor Moorlach, in an article posted on the FlashReport Blog, used his own hypothetical example of a 50 year old deputy sheriff who retired after 25 years of service to illustrate his “pension spike” example. The 50 year old deputy sheriff received a 33% increase in his pension.

Example: A 50 year old deputy sheriff with 25 years of salary and a final average salary of $11,996 per month (these are Moorlach’s numbers he used in his Flash Report article) will earn a benefit under the “old pension formula” of $71,978 annually OR $107,964 under the 3% @ 50 formula. The difference between the two benefits represents a 33% increase in going from 2% to 3% per year of service.

BUT WAIT, THERE’S MORE.

Supervisor Moorlach does not use an example of a deputy sheriff that retired closer to the actual age of retirement which is well above the age of 50. Ignoring these retirees is harmful to the overall debate because the increase of the 3% @ 50 is MUCH LESS for a retiree over age 50.

The “old pension formula” contained an escalator in benefit level that took effect at age 51 and continued upward until the deputy sheriff reached age 55.

Example: This deputy sheriff is now 55 years old with 30 years of service. Using the same final average salary of $11,996 per month, the deputy sheriff will earn a benefit under the “old pension formula” of $113,136 annually OR $129,552 under the 3% @ 50 formula.

The difference between the two benefits represents a 12% increase in going from 2% to 3% per year of service. The “old pension formula” that the deputy sheriff actually earned was equal to 2.6% @ 55.

CONCLUSION.

First and foremost is that the numbers used by Moorlach in his example are not real.

The REAL average monthly pension benefit for a deputy sheriff is $5,280 ($63,360 annually).

Supervisor Moorlach cannot possibly justify the amount he claims the retroactive benefits actually cost and he should stop his crusade long enough to at least get a professional analysis of what the cost of these pension benefits changes really are.

Supervisor Moorlach’s assumptions and numbers need to be checked and verified before this is allowed to proceed because the harm done to retirees and active members of the Sheriff’s Department will far exceed the benefit to the county’s general fund if his escapade turns out to be a boondoggle.

The difference between 2.62% under the “old pension formula” and 3.00% under the “new pension formula” is SMALL enough to be called a “pension slip.”

Briefing is over.