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Commentary: Learning the language of public pensions

April 21, 2014|By the Costa Mesa Pension Oversight Committee

Editor's note: Attorneys John Stephens and Tim Sesler, two members of Costa Mesa's Pension Oversight Committee, asked the Daily Pilot to publish the panel's findings and recommendations. The committee put together a series of three articles that seek to explain and simplify the complex subject matter to residents. This is the third installment.

At a minimum, pension terminology can be challenging. At a maximum, it is outright confusing. In this installment we attempt to define some of the more commonly used pension terminology. By sharing this basic terminology, we hope to expand your understanding of complicated terms in an uncomplicated manner.

CalPERS: Costa Mesa contracts with CalPERS, the California Public Employees Retirement System, to administer pensions for city employees. CalPERS administers pensions for more than 1.6 million active employees and retirees, including state, county and municipal employees, as well as public school and state university employees. While CalPERS is the administrator of our employee pensions, the payments are guaranteed by the taxpayers of Costa Mesa, not CalPERS.

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Defined benefit plans: Pensions are referred to as defined benefit plans. DBPs establish a formula for pension payouts based on age, years of service and salary level. Costa Mesa benefit payments are guaranteed for the life of the employee, and if a lesser benefit is selected, for the life of the employee's spouse. Pension benefits increase annually, and the pension benefits received by retirees are not affected by the investment results achieved by CalPERS.

Defined contribution plans: Retirement plans funded by a set contribution formula, most commonly a percentage of salary, are called defined contribution plans. The most common DCP is a 401(k) plan, which involves employers and employees contributing to an employee account. The employee directs the investment, and there is no guaranteed investment return.

Employee groups: Costa Mesa employees are divided into three groups — safety police ("on the street" police officers), safety fire ("on the street" fire personnel) and miscellaneous (all other city employees, managers, and police and fire administrative employees). Through their bargaining units (union or association representation), each employee group has negotiated its own pension benefit formula.

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