AP’s pension probe misses the broad view

Good reporting is undermined by a lack of context

The Associated Press has a tough three-part investigation out this week looking at corruption in an old Washington state pension program. This is the kind of core accountability journalism we look for from newspapers and their wire service but see a lot less of these day.

Unfortunately, the series is undermined by a lack of context that would help us understand the scope of the problem.

The probe focuses on the LEOFF-1, a pension plan only for public-safety workers who were hired before changes were made to the state’s pensions in 1977. Those workers have their retirement benefits based on their last paycheck, which encourages “spiking”—raising salaries at the last minute to boost their retirements. The AP finds that over the last five years, cops and firefighters retiring into the LEOFF-1 plan got 5.5 percent raises on average in the last year of their service—twice what retirees in other plans got—in large part it, seems, because localities wanted to encourage them to retire to cut their own labor costs.

The AP finds some outright instances of abuse. Walla Walla, for instance, gave its fire chief a 9 percent raise three days before he retired because it wanted to “do something” for him. That raise will cost the state pension fund $10,000 a year. The North Highline fire district gave its fire chief a 58 percent pay raise three months before retirement. Lakewood gave two already-very-well-paid fire managers 10 percent raises four days before they retired.

One function of the LEOFF plan is that the state covers much of the pension funding costs, but the localities cover the medical costs for retirees. That may have made sense 44 years ago, when the plan was devised and medical costs had yet to skyrocket. But self-insurance doesn’t work for small towns like Hoquiam:

The city money going to the medical coverage of former firefighters and police officers in just the so-called LEOFF-1 pension system totaled $1.2 million over the past couple of years, according to budget documents. By comparison, the entire active Fire Department budget of salaries, medical supplies and equipment totaled about $1.8 million during the same period.

One thing the AP doesn’t mention, though, is that Hoquiam is much smaller than it used to be back when it was Kurt Cobain’s first home. Its population—and thus its tax base and possibly its current need for city employees—is down by one-sixth since 1970.

In the final installment of the series, the AP looks at how LEOFF I retirees abuse the disability system. It finds that a staggering 88 percent of Seattle Fire Department retirees in LEOFF I, and 57 percent of all retirees statewide in the program, are on disability (the reformed LEOFF 2 plan has just 9 percent on disability). That doesn’t mean much for the local governments. But it does mean that their retirees don’t have to pay federal taxes on their retirement income and are eligible for Medicare earlier. And it means they can double dip:

At least 422 disability retirees in the LEOFF-1 system later returned to work in other government positions, according to an AP analysis of pension and employment records. An untold number of others worked in the private sector. As long as LEOFF-1 retirees do not work in other LEOFF-1 positions, their disability benefits will not be disrupted.

This is excellent reporting but lacks basic context.

How much do these apparent abuses cost? We’re not told beyond estimates for individual anecdotes. How much do they cost taxpayers? We’re not told that either, though in LEOFF’s case, it seems likely that investment gains over the last 35 years pay for the vast majority of the benefits.

We’re barely told that the LEOFF-1 is dramatically overfunded—by more than a billion dollars and the AP does so in a way that would slip past most readers (emphasis mine):

Pearce also thinks the state could tap extra dollars in the LEOFF-1 pension fund to help local governments cover the cost of the medical side.
Mark Curtis, who retired from the Thurston County Sheriff’s Office and is now an advocate for LEOFF-1 pensioners, said he generally supports the insurance idea so long as it’s fully paid by local governments. But he opposes any effort to tap the excess LEOFF pension dollars because it would make the system less secure.

And the AP mentions a lot of high salaries but never notes that the average LEOFF-1 retirement benefit is about $3,500 a month (as of 2010), nor that the median benefit is surely lower even than that. For all Washington government employees, the median monthly benefit is a bit more than $1,500.

The AP also doesn’t do a good job of making it clear that problems with LEOFF-1 have been well known for more than 35 years in the press and in the government and that pensions have since gone through several rounds of reform to make them much less generous and to strengthen their rules.
The AP’s stories, particularly with headlines like “Pay raises near retirement spike Washington pension benefits,” leave the impression that LEOFF I’s problems are endemic to the entire state government and its pension system, but that’s apparently not the case.

It also doesn’t tell us how much LEOFF retiree health care costs compared to non-LEOFF retirees of a similar demographic. It just tells us their medical benefits are “lavish.” But at least on some plans, insurance rates for LEOFF I retirees on Medicare are similar to rates for other retirees, though LEOFF I retirees not on Medicare cost much more. How many LEOFF-1 retirees are on Medicare and how many aren’t? We’re not told. But surely the main problem here is not the lavishness of the benefits, but the exponential rise in health care costs generally over the last 35 years.

Finally, the AP doesn’t note that Washington’s public pension funds—as a whole—are some of the best run in the country, funded far better than almost all other government and corporate pension funds. At 95 percent funded, Washington has the fourth best-funded state pension in the country, according to Pew.

In a story sure to whip up anger against greedy and corrupt government employees—and one on a topic as important and arcane as public pensions— all this missing or skimpy context detracts from some good reporting.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum. Tags: , , , ,