Disability Pensions Are Costing Local Governments in San Bernardino County and Elsewhere

Here is an article from the San Bernardino County Sun that examines a lesser analyzed aspect of rising public employee pension costs. The article looks at the high incidence of government public-safety workers receiving disability pensions, also known as “medical retirements.” According to the article, “between 1975 and 2006, about 89 percent of retiring Redlands police officers took medical retirements.” Other local jurisdictions in San Bernardino County had high medical retirement rates as well. For example,

In San Bernardino, about 46 percent of police and firefighters who retired since 2000 received a medical retirement. Councilman Fred Shorett said it’s not necessarily a sign of malfeasance, but he also said he’d like the city to look into the number of medical retirements granted.

“I think when it’s around 50 percent, there’s something that doesn’t look exactly right,” he said. “You wouldn’t find that in the private sector.”

Disability pension rates varied widely across the county, however, and some local governments had rather low rates. Pomona, Ontario, and Montclair, for example, all had public-safety employee medical retirement rates of less than 20%.

High disability pension rates are significant because these benefits are more generous than regular public-safety pensions, which are typically already rather generous (public-safety workers oftentimes can retire with maximum benefits of 90% of their final salaries after 30 years of work as early as age 50 or 55). Unlike regular pensions, half the amount of the disability pension is tax free, retirees receive fully paid medical care for the rest of their lives, and 100 percent of the disability pension can be inherited by a spouse upon the retiree’s death, compared to the 65 percent limit offered to spouses under regular pensions.

Curiously, according to Redlands councilman Mike Gallagher, in virtually every medical retirement case he has seen in the five years he has been on the City Council, officers seeking disability pensions have either retired already or reached typical retirement age. As I told reporter James Koren, author of the Sun story, the high rate of disability pensions and the fact that they tend to come at the very end (or after the end) of careers suggests that there is some gaming of the system going on.

This brought to mind some investigations of “chief’s disease” arrangements that came to light a little over five years ago when I was researching public pension issues for my first pension study, The Gathering Pension Storm: How Government Pensions Are Breaking the Bank and Strategies for Reform (see pages 60-62). As I wrote in that study,

Here’s how the scheme works. Fire and sheriff’s employees file a workers’ compensation claim under California Labor Code 4850 a year before their retirement dates. They are then allowed to take a one-year leave of absence while collecting their full salaries tax free. Since taxes are not taken out of their pay, their salaries effectively increase. Since pension benefits are calculated based, in part, on final (or highest) salary rates, this increases their pensions as well. Moreover, the leave of absence means they get credit for an extra year of work without actually having to work. Since length of service also figures into pension benefits calculations, this boosts their pensions even further. For many, this is only the first step. Next, the employee may file for a job-related disability pension.

Generous rules about what ailments make one eligible for disability benefits contribute to the high medical retirement rates.

But fighting a medical retirement application can be difficult, especially because state labor law says if a police officer or firefighter has certain conditions—including heart disease, pneumonia and lower-back ailments—the maladies are presumed to have been caused by their jobs.”

Heart disease, hypertension, cancer—some of these are common diseases, and in many cases, we don’t have a choice” but to approve medical retirements, said Redlands Councilman Jerry Bean. “There are many other reasons for hypertension and heart problems than stress on the job.”

He said the state should look at changing some of those so-called presumptions as a way to curtail medical retirements.

There have even been cases like the one in which a four-pack-a-day smoker in Ventura County received a disability pension because his cancer was deemed to be a job-related disease.

Some argue that because the main benefit of a disability pension is better tax treatment, it doesn’t really cost a local government anything to approve the more generous medical retirements. But San Bernardino City Attorney James F. Penman and San Bernardino councilman Shorett note that there is no such thing as a free lunch.

“The effect on the taxpayer is that the disability retirements for safety (employees) is … 50 percent tax free,” Penman said. “Other taxpayers are subsidizing them.”

Shorett said the tax break costs the state and federal government, which in turn costs everyone.

“If it’s costing the government, it’s costing us,” he said.