Does the average Orange County firefighter make $234,000 per year? No. And that's the bad news.

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Fire Fighters and emergency personal rush to control fires in Brea CA. Many homes in the area have been destroyed as a result of the wildfires.

Article Highlights

  • It's up to OC residents to decide what to pay public servants, but a good first step is to know what they're currently paying.

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  • UnionWatch.org reports that the average firefighter in OC pulls in total pay and benefits of $234,000 per year

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  • An average year an Orange County firefighter accrues future pension benefits worth over $118,000.

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UnionWatch.org reports that the average firefighter in Orange County, California pulls in total pay and benefits of $234,000 per year, making them among the best-paid public employees - and, for that matter, among the best-paid of any kind of employees - in the country. But is this true? No. But yes.

UnionWatch relies on compensation data provided by Orange County itself, which appears to buttress their claims. Average salaries for firefighters top $91,000, on top of which they typically receive another $65,000 in overtime and other supplementary pay. Firefighters then receive an employer pension employer contribution of around $61,000 and health insurance benefits of about $15,000, for a total of over $234,000.



So why is this not right? Because in Orange County and most other cities and states, much of the employer's pension contribution is to pay off unfunded liabilities from prior years, which is different from pension benefits earned by employees in the current year. Only the latter is truly compensation. The "normal cost" of Orange County Fire pension benefits accruing this year is about 23.49 percent of salaries, or around $37,685. So, average annual compensation would be around $23,000 less, so make that total compensation of about $211,000. Still not shabby, but less than the headline.

But here's the bad news: total compensation is actually a lot higher than $211,000, and even higher than UnionWatch's $234,000 figure. The reason is that Orange County calculates its pension contribution based on the assumption the plan's investments will 7.75% investment returns every year. Maybe they will, maybe they won't - but that's Orange County's problem: under California law, firefighters' benefits will be paid regardless. The way to account for this guarantee is by valuing benefits using a lower "discount rate." If we assume a 4% interest rate - something above the riskless Treasury yield, but lower than the pensions' own risky investment return - the normal cost of Orange County Fire pensions rises a lot - to about 75 percent of salaries. (Before you think I'm making this stuff up, note that the Congressional Budget Office applied the same risk-adjustment in valuing pensions for federal government employees.) In other words, in an average year an Orange County firefighter accrues future pension benefits worth over $118,000.

So total annual compensation for an average Orange County firefighter is somewhere in the neighborhood of $290,000 per year. It's a difficult and sometimes dangerous job, to be sure - but there are other difficult and dangerous jobs as well. It's up to Orange County residents to decide what to pay public servants, but a good first step is to know what they're currently paying.

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About the Author

 

Andrew G.
Biggs
  • Andrew G. Biggs is a resident scholar at the American Enterprise Institute (AEI), where he studies Social Security reform, state and local government pensions, and public sector pay and benefits.

    Before joining AEI, Biggs was the principal deputy commissioner of the Social Security Administration (SSA), where he oversaw SSA’s policy research efforts. In 2005, as an associate director of the White House National Economic Council, he worked on Social Security reform. In 2001, he joined the staff of the President's Commission to Strengthen Social Security. Biggs has been interviewed on radio and television as an expert on retirement issues and on public vs. private sector compensation. He has published widely in academic publications as well as in daily newspapers such as The New York Times, The Wall Street Journal, and The Washington Post. He has also testified before Congress on numerous occasions. In 2013, the Society of Actuaries appointed Biggs co-vice chair of a blue ribbon panel tasked with analyzing the causes of underfunding in public pension plans and how governments can securely fund plans in the future.

    Biggs holds a bachelor’s degree from Queen's University Belfast in Northern Ireland, master’s degrees from Cambridge University and the University of London, and a Ph.D. from the London School of Economics.

  • Phone: 202-862-5841
    Email: andrew.biggs@aei.org
  • Assistant Info

    Name: Kelly Funderburk
    Phone: 202-862-5920
    Email: kelly.funderburk@aei.org

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