If I were a government employee in California, I’d cringe anytime I heard the name Bruce Malkenhorst.
Malkenhorst worked for the tiny city of Vernon for 29 years, culminating with his tenure as city manager. He somehow persuaded his employer to pay him as much as $911,000 in total annual salary, making him one of the highest paid city employees in the country, and almost certainly the highest paid per resident served.
He also received the largest annual pension in the CalPERS system: more than half a million dollars. But CalPERS cut his benefits by almost 80% last year, to $115,000, because it said Vernon hadn’t properly reported Malkenhorst’s pay during much of his time at work.
Now Malkenhorst is suing Vernon, arguing that the city should restore the money cut by CalPERS. His argument essentially is that he’s entitled to the pension, and Vernon has the ultimate responsibility to make good on that promise.
Regardless of the legal merits of Malkenhorst’s claim, the lawsuit feeds into the caricature of greedy public employees who view the public treasury as a personal trough. It doesn’t help matters that Malkenhorst was convicted in 2011 of taking $60,000 from said treasury to spend on golf, meals and other personal uses.
That caricature has helped weaken support among taxpayers (and voters) for public employee pensions. And with some local and state plans facing huge unfunded liabilities, policymakers have started looking for ways to cut pension costs -- by providing less generous benefits to new employees and forcing current ones to contribute more to their retiree health expenses.
What shouldn’t get lost in these debates, though, is that pensions aren’t a freebie lavished on civil servants. They’re part of an employee’s salary that he or she has agreed to defer for 20 to 30 years. In other words, it’s money that workers earn in the course of doing their jobs. And because the deferred compensation is invested and grows before it’s paid out in benefits, those benefits can appear much more generous than they cost.
Yes, promising a pension is riskier financially than offering a 401(k) plan because the former’s benefits are guaranteed, while the latter’s are not. For a fund the size and scope of CalPERS, the investment risks are manageable. The problem lies in the political risks -- for example, that governments will use temporary spikes in investment returns or drops in tax revenue as an excuse to pay too little into a pension fund, generating liabilities that officials will have to find a way to cover in later years.
The real question, though, is how much should a public employee’s total compensation be, not how it’s structured. If public servants want to defer some of their pay for their dotage, they ought to be able to do so -- provided, of course, that the pensions are funded properly. Admittedly, that’s not a trivial caveat.
Anyway, taxpayers expect governments not to pay their workers more in total compensation than their counterparts in private industry receive. Public service is supposed to be a sacrifice, after all -- if you don’t like the terms, you can go seek your fortune in the private sector.
The bottom line for Malkenhorst is that it’s hard to see what sacrifice he was making by accepting $911,000 in salary and $545,000 in pension benefits. When the public hears about deals like that, it advances the meme that pensions are the problem, when in fact the fault lies with the people who negotiated them.
Follow Jon Healey on Twitter @jcahealey