S.F. pays supplemental pensions to retired brass SAN FRANCISCO

San Francisco's biggest pension earners receive hefty checks not only from the city's pension fund, but also additional money from the cash-strapped departments in which they worked.

The system allows the retirees, all top brass from the police and fire department, to receive annual payments far above the $195,000 pension cap allowed by the Internal Revenue Service.

The city's retirement fund cannot pay more than that, but it's fairly common for cities and other employers to legally get around the provision. San Francisco does it by passing the extra tab on to the employees' former departments.

The extra payments don't add up to much, but they're symbolic of what many city officials say is an unsustainable pension system that must be reined in. And they're spurring the mayor and others to back the establishment of a pension cap that could dramatically reduce the guaranteed amount retirees are due.

Reduced services

City officials say pensions must be reformed or they'll eat away at basic city services like public safety - but in truth, the extra payouts to retirees from the police and fire departments prove that's already directly happening.

For example, the city's No. 1 pension earner, former Police Chief Heather Fong, last year received $195,000 from the regular pension fund plus $69,246.85 from the police department.

The department - which is so broke, it can't afford police academy classes this year or next - will be on the hook for that payment, plus cost-of-living hikes, every year for the rest of Fong's life.

Former Deputy Chief Charles Keohane received $36,253.94 last year from the police department, and former Chief Earl Sanders received $32,357.17, according to information provided by the San Francisco Employees' Retirement System.

In total, the police department last year paid close to $150,000 to its five pensioners due more than $195,000, and the fire department paid about $46,000 to its three retirees who qualify for the greater sum.

It's a tiny fraction of the departments' annual budgets, but the figure could grow significantly as more high earners retire. The police department alone has 370 officers with 30 years of service or more, according to the Police Officers Association.

No waiver for S.F.

The issue of IRS caps and pensions gained prominence in December when The Chronicle broke the story that three dozen of the University of California's highest-paid executives had threatened to sue the UC system unless it drastically upped their pension payments.

The IRS in 1994 instituted a cap on salary that can be used to calculate pensions, a figure that now stands at $245,000. (A separate IRS rule limits the pensions themselves to $195,000.) The UC executives argued that because the university had received a waiver from the IRS, they were entitled to have their entire salaries, often much higher than $245,000, used to calculate their pensions.

San Francisco has not obtained a waiver and is bound by the $245,000 salary cap and the $195,000 pension limit, both of which were created to prevent employers from turning pension funds into tax shelters.

But the salary cap of $245,000 applies only to city employees who became part of the San Francisco Employees' Retirement System in 1996 or later. Fong and others who began working for the city before that can have their entire salaries used to calculate their pensions.

Bargained agreement

Richard Kochevar, who retired as a deputy chief in the fire department in 2008, last year received $27,627.78 from the fire department on top of his $195,000 city pension, according to the San Francisco Employees' Retirement System.

Reached at his home, Kochevar said he spent his 32 years in the department working his way up through the ranks and entrusted his union with bargaining his pay, pension and other benefits.

"I just loved to have the job - it was the best job in the world," he said. "I never even considered the money at the time. ... I just accepted what they bargained."

He said he doesn't have an opinion about pension reform, but emphasized that he's not getting rich because he pays a lot in taxes and supports two sons.

"It's not like I'm going on vacations and enjoying all this stuff," he said. "I'm driving an old '94 Ford Explorer with 260,000 miles on it."

The other seven retirees in question, including Fong, either couldn't be reached or didn't return calls for comment.

Their pension payments are just part of the skyrocketing pension problem. This year, the city is paying $360 million toward pensions, an amount projected to hit $800 million by 2014, according to the controller's office. The entire city budget is $6.6 billion.

Working on reforms

Mayor Ed Lee has said pension reform is one of his top priorities this year, and city officials are expected to place a measure changing pensions and health benefits on the ballot in November.

One approach would be to cap pensions for new employees at the IRS limit or lower, an idea supported by Lee, though he hasn't decided what amount would be acceptable, said his spokeswoman, Christine Falvey.

Supervisor Sean Elsbernd, who is participating in the pension discussions with Lee and others, is adamant that a cap is necessary.

"If the IRS is capping pensions, should the city be capping pensions? The answer is yes, and we should be capping it at a much lower level," he said.

Elsbernd would like to see guaranteed pensions at $100,000 a year. In addition, employees could choose to participate in a program similar to a 401(k), in which their contributions would be matched by the city. Elsbernd said this means employees would bear some of the risk instead of just taxpayers.

"It's a fairer way to go," he said.

Public Defender Jeff Adachi, who is crafting his own pension and health care reform measure for November, likes that idea. But his measure is likely to cap pensions at $85,000 a year and limit the city's contributions to the 401(k)-type system to 3 percent of a worker's salary.

Bob Muscat, head of Professional and Technical Engineers Local 21 and a participant in the pension reform talks, said a pension cap probably won't make a big dent in the problem - especially in the short term. But he said one is likely to be part of the ballot measure and that he supports the idea.