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California

Public hospital president’s retirement pay spotlights issue of ‘supplemental’ pensions

When he turned 65 two years ago, Samuel Downing received a $3-million retirement payment from a public hospital district in Salinas, Calif., where he serves as president and chief executive.

But Downing continued working at his $668,000-a-year job for another two years, and after he retires this week, he will receive another payment of nearly $900,000. That comes on top of his regular pension of $150,000 a year.

The payments amount to one of the more generous pension packages granted to a public official in California and come amid growing debate about “supplemental” pensions that some officials receive on top of their basic retirement benefits.

Though Downing’s case is extreme, it follows the disclosure of extra pension benefits received by employees in municipalities including Bell and San Diego. Earlier this year, a state watchdog group called for stricter pension rules, saying California’s retirement plans are “dangerously underfunded, the result of overly generous benefit promises, wishful thinking and an unwillingness to plan prudently.” Seventy percent of Californians support a cap on pensions for current and future government workers, according to a recent Los Angeles Times/USC Poll.

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Officials at the Salinas Valley Memorial Healthcare System defended the payouts, saying they need to pay private-sector-level benefits to retain top talent. They described Downing as a gifted and experienced administrator.

“I think I’ve earned it,” Downing said in an interview. “I’ve stayed here out of my commitment to try to build a great hospital.... I worked for this institution and gave them my heart and soul.”

A review of some other California hospital districts suggests his retirement package is unusually high. These districts are public entities that have the authority to tax and are operated by an elected board of directors, who set salary and compensation. The districts receive funding from a variety of both public and private sources.

Several hospital districts said they offered no supplemental pension plan for their executives, including the Antelope Valley Hospital District in northern Los Angeles County, which has 150 more beds than Salinas Valley and 1,000 more employees.

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Even districts that do provide additional retirement benefits to CEOs do so on a less generous level than Salinas Valley.

Michael Covert, the CEO of San Diego County’s Palomar Pomerado hospital district, receives about $80,000 a year in deferred compensation. But unlike Downing, Covert does not receive a regular “defined-benefit” pension on top of deferred compensation.

Nancy Farber, the CEO at the Washington Hospital Healthcare System in Fremont, has a supplemental pension plan valued at about $400,000. She and Covert run much larger hospital districts than Salinas Valley.

Downing’s retirement plan was crafted in a way that allowed him to receive more pension compensation than IRS tax-shelter rules generally allow. The hospital pays him through several accounts, getting around IRS rules limiting the size of a single retirement fund.

Mike Profumo, a financial consultant for the hospital, said Downing’s package was designed to “take advantage” of the IRS code by putting his compensation into several accounts. He stressed that the practice is not uncommon and that it fully complies with the law.

But Marcia Fritz, a Certified Public Accountant and pension reform advocate who reviewed a summary of Downing’s retirement package, called it unusual for a public employee both in the number of accounts used and their total value.

“It’s very unsettling that it was so easy for them to do this,” she said.

The Salinas Valley hospital, which was founded in 1953, has roughly 2,000 employees and 270 acute-care beds. The hospital system had operating expenses of about $380 million last year, according to its financial statements.

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Downing, who holds degrees in business and hospital administration, started at the district in 1972 and has been CEO since 1985. The retirement payments were renegotiated several times during his career, and were funded through the hospital’s own pension accounts, not the California Public Employees’ Retirement System, which limits the size of one-time pension payments. Salinas Valley officials said they used an independent consultant to ensure that Downing’s package was within market practice.

They also said they chose the payments as a way of compensating Downing without significantly increasing his base salary or awarding him bonuses.

Downing has maintained a prominent presence at the hospital and in Salinas, a city of about 150,000. In 1988, he led the opening of the area’s first program specializing in cardiac surgery, treatment and rehabilitation, hospital officials said. The heart program later forged a major partnership with Stanford Hospital & Clinics. Downing also serves in multiple state health organizations and has helped support several bills in the Legislature.

Two of Downing’s sons and his son-in-law work at the hospital, and in the 1990s, the hospital’s elected board of directors named a new parking structure in his honor.

But the $3.9 million in supplemental retirement payments to Downing has come during a period of cutbacks at the hospital, including the reduction of 600 positions through layoffs and attrition.

Hospital representatives said the cuts were mainly a response to recent economic conditions. The hospital has faced declining revenues and patient admissions and has been burdened by construction costs of a state-mandated retrofit project, they said.

“It’s not like people are being laid off so Sam [Downing] can get a pension; what’s happening here is a right-sizing,” said hospital spokeswoman Adrienne Laurent, adding that Downing’s compensation and pension were approved by the hospital’s elected board.

Public district hospital administrators like Downing are among the best-paid public employees in the state, according to a database published recently by state Controller John Chiang.

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Covert, who runs the state’s largest district, is also the top-paid employee in the database. He made just over $1 million in total wages in 2009. Downing’s total compensation that year was $790,000, which included a car allowance and paid time off. Covert’s district has more than twice the employees of Downing’s.

Public hospital officials and their advocates argue that they must pay top dollar to compete with private hospitals.

Still, some say the compensation is too high. John Borsos, a vice president at the National Union of Healthcare Workers, said Downing’s pay package is evidence that the Salinas Valley board of directors “has been asleep at the wheel.” Borsos, whose union represents hundreds of workers at the Salinas district, called Downing’s pay and pension “outrageous.”

Downing said he is aware of concern about rising public pension costs and tried to take steps to address it before stepping down. Some new Salinas Valley employees will participate in a defined-contribution plan in which the employees bear the risk of investment, rather than the hospital, he said.

But Downing and other hospital officials made no apologies for the pension he will soon enjoy.

“You have to keep in mind Sam’s record of success here,” said Profumo, one of the hospital’s consultants. “He led this organization through unprecedented growth. It was a top-performing hospital in the state.... You have to put it in perspective.”

samuel.allen@latimes.com


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