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California School Manager Benefits Surge as Pension Faces Crisis

June 5 (Bloomberg) -- Payouts for the top-earning public school retirees in California are soaring even as districts are being asked to pay more to gird the teachers’ retirement system against a funding crisis.

Seventy-five former school administrators collected pensions of more than $200,000 last year, compared with one a decade earlier, according to data compiled by Bloomberg from the California State Teachers’ Retirement System. The average pension of 200 former school administrators at the top of the Calstrs scale rose 63 percent in the past decade, versus 4 percent for all 269,274 teachers and other plan participants.

“To take home these huge pension benefits in retirement is not sustainable and in my view not fair,” said Ted Gaines, a Republican on the state Senate retirement committee. “It just seems too rich and very difficult for taxpayers to carry that burden.”

The number of highly paid retirees in the most populous and most indebted U.S. state is surging as Governor Jerry Brown struggles with a $74 billion unfunded liability in Calstrs that could render the fund insolvent in three decades. The 76-year- old Democrat has proposed doubling the amount schools contribute to prop up the U.S.’s second-biggest public retirement fund. The districts, carrying almost $80 billion in general-obligation debt, would pay about 70 percent over the 32 years of Brown’s plan.

California’s independent legislative analyst, Mac Taylor, warned last month that Calstrs may deplete its assets by the 2040s and urged lawmakers to make the shortfall a top priority.

$339,320 Pension

William M. Habermehl, who retired in 2012 after a 45-year career that included 11 years as Orange County schools superintendent, is collecting $339,320 annually, 5 percent more than the $322,159 he made in his last year of work. His pension was boosted by more than two years of unused sick time, a longevity bonus and a formula granting him a higher rate of pay because he worked longer than 30 years.

Habermehl was traveling and unavailable for comment, said Wendy Benkert, Orange County’s associate superintendent for business services.

Compensation grows as incoming superintendents use the salaries of other administrators as leverage in negotiations, California Treasurer Bill Lockyer said. Pension pay is based on a formula that includes the retiree’s final compensation, age and years worked. It can also include unused sick leave and vacation time.

Jose Fernandez, superintendent of Centinela Valley Union High School District in Los Angeles County, earned $632,611 in taxable income last year, according to the county Office of Education.

Twice Governor

“The pension is a consequence of the high levels of pay,” said Daniel Pellissier, an adviser to former Governor Arnold Schwarzenegger and now president of California Pension Reform in Sacramento, which advocates overhauling the state system. “Why should a district school superintendent be getting twice as much money as the governor?” Brown earned $173,987 last year, according to the Citizens Compensation Commission.

Fernandez didn’t respond to a request for comment.

Lockyer, a Democrat, said he’s pleased that Brown proposed a plan for paying down Calstrs’s obligations.

“The unfunded liability dilemma is a really serious matter,” he said. “If we don’t do anything, in about 30 years, it implodes. The unfunded liability is so severe, it’s like a black hole.”

Administrator pensions must be reined in, said Gaines, the state senator.

No Comparison

“I don’t have a problem with someone being paid for their value, but on the pension side, there ought to be a cap in terms of how much is paid out,” he said. “If I did a comparison to similar responsibilities in the private sector, chances are those folks with equal skills don’t even have a pension.”

The top-earning education retiree in New York collected $325,854 last year, according to Heidi Brennan, spokeswoman for the Teachers’ Retirement System. In Illinois, it was $273,574, according to data provided by that state’s Teachers’ Retirement System. In Florida, the highest-paid school pensioner got $192,055, said Ben Wolf, spokesman for the Department of Management Services.

Ed Derman, Calstrs’s deputy chief executive officer, attributed the fund’s liability to the dot-com bust of the early 2000s and the 2008 financial crisis.

‘Don’t Judge’

“We don’t judge the appropriateness of the salary,” Derman said. “If somebody gets paid $350,000, we don’t say that’s too much money. That’s not for us to say. That’s a decision that’s made at the local level.”

California pays about 5 percent of total teacher payroll into Calstrs to support pensions. School districts provide 8.25 percent of payroll, while teachers and other employees give 8 percent of their pay.

The total from all three sources was about $6 billion in the last fiscal year. Contributions could increase by more than $5 billion annually by the early 2020s, said Taylor, the legislative analyst.

“We are promising employees benefits that we don’t have the money to pay for,” Pellissier said. “To the extent that Calstrs needs money to pay for these pensions, it’s going to come out of the budgets that are used to teach our children.”

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