HomeAnalysisWhy APD’s Pension is Incompatible with Oversight Demands
Why APD’s Pension is Incompatible with Oversight Demands
“The City could offer a member option, this would be completely optional to the members, but an option for the members to join a defined contribution plan so that they would have more choice in what retirement solution worked best for them… (continued)”
Ed Van Eenoo, City of Austin Chief Financial Officer, speaking to the 87th Legislature’s Pensions, Investments, and Financial Services Committee on HB 4368 (29:00 minute mark in the video).
The Austin Police Department’s defined-benefit pension plan is the root barrier to the oversight system activists demand.
Why is that?
Because the pension pits officers’ financial interests against the implementation of independent civilian oversight and discipline.
This article explains the misalignment in incentives between APD’s retirement plan, officer’s interest in obtaining pension they signed up for, activists’ demands for more oversight, and the Office of Police Oversight’s ability to increasingly weigh in on disciplinary decisions.
The good news is that there is another retirement plan option the city could offer that APD employees could opt into that would resolve the misaligned incentives. At the end of this article I’ll suggest the implementation of an additional, parallel retirement plan that officers could opt into that would better align officers’ and the public’s interests.
The Pension as a Financial Impediment to Oversight Reform
I’ll start by explaining why APD’s defined benefit pension, which I’ll refer to as a DB plan, discourages officers’ acceptance of proposed oversight reform. Simply put, cops will oppose any change in oversight or discipline that reduces an officers’ chances of reaching retirement. Simple enough, right?
Law enforcement is an all-or-nothing kind of career. Nearly all police departments in Texas only offer a defined benefit pension plan as their main retirement vehicle. Due to the unpredictable working hours and changing assignments, very few people can both work as a police officer and build their own business outside of work. Choosing to serve a city as their police officer effectively forecloses a person’s path in life of building a career or business in the private sector, at least while they remain employed as an officer.
To compound the dilemma, accepting a career in law enforcement is gambling your financial future on the hope that you can make it to retirement. As an officer, you either stay in for the 20-30 years it takes to reach retirement, or you receive next to nothing if you leave early.
What do I mean by “next-to-nothing?”
First, an APD officer who leaves early will only receive a small fraction of the value they would receive if they stayed until full retirement. APD’s DB pension is a retirement plan where officers and the City contribute money into a fund that pays a specified (or “defined”) benefit at retirement. DB plans intentionally back-load as much of the financial incentive as possible in order to retain employees over a long time period. This is why DB plans are referred to as “golden handcuffs.”
If an officer leaves the Department and chooses to receive their money back, the system gives them back the exact dollar amount that came out of their paychecks. Due to the underfunded status of the pension system, officers don’t even receive the interest earned (page 122) on the investments their dollars were put into while their money was in the system. Interest earned is retained in the system.
In effect, officers who leave APD give an interest-free loan to other future retirees and, due to inflation, receive back money that has less purchasing power than when they put that money in. Not a great option, even aside from the obvious morality and fairness issues here which I wrote more about here.
Second, and again due to under-funding, the pension does not offer a cost of living adjustment (page 123) and won’t for many, many years. If officers are vested, choose to leave before full retirement, and opt to leave their funds in the system, they won’t receive a benefit until they are 62. The purchasing power of whatever benefit they are eligible for today will be inflated away over the decades before they receive that benefit. Not a great option here, either.
Third, like being a Javelin gunner in the military, a law enforcement resume does not easily transfer into a private sector job. It’s not like being a sales professional, engineer, or accountant who can move from working at one company to at any other company. Years spent mastering criminal investigation is of little value to most companies.
Fourth, although APD has a 457(b) plan (the public sector equivalent of the private sector’s 401(k)), officers typically don’t have a lot of discretionary funds to put into it. The DB plan currently takes 15% of every officer’s paycheck. Because of this, few officers are able to build a useful 457(b) balance that would offset the cost of leaving early without the pension benefit.
To give a real life example, an officer who leaves after 11 years of APD service would receive back the money they put into the system, which is somewhere in the ballpark of $110,000. This may sound like a windfall to the ears of a 20 year old, but if you are 40 and the total retirement fund you’ve saved up so far in life is $110,000 (plus whatever else in a 457(b), IRA, or other savings), you are way behind the curve and may never be able to retire.
This is the financial reality officers think about when deciding whether they’ll support a new program of oversight which may reduce their odds of reaching retirement.
The Need for Fair Oversight
Independent oversight is an understandable and necessary feature of any governmental organization, especially a police department. Nobody hates bad cops more than the good cops trapped working with them.
However, when you are talking about giving an oversight body the power to subpoena, discipline, or fire a public, civil service employee within a DB pension system and deprive them of that pension, only a completely professional, competent, fair, and impartial oversight body will do.
Even then, investigators are human and make mistakes, which is where appeals and arbitration comes into the picture to ensure a disciplined employee received due process. After all, if you are going to deprive someone of upwards of nearly a million dollars a promised benefit, there should probably be an appeals process just to double check an investigator’s initial work and conclusions.
Ideally, you would want investigators to be licensed attorneys or experienced peace officers with something (a license, for example) to lose for incompetent or unfair investigative practices.
For example, few people complain when the Texas Rangers are appointed or called in to investigate an incident involving some random Texas police department or governmental agency. The Rangers have earned a reputation of being professional and competent, and as long as they don’t personally know the people involved in whatever other agency’s incident that they are investigating, there is no reason to doubt their fairness or impartiality. If the Ranges say someone screwed up, they probably screwed up.
However, and here’s where the problem comes in, with respect to police oversight, Austin City Council has historically done the exact opposite of this by appointing to oversight bodies individuals with no law enforcement experience or knowledge, even convicted felons (see 2-15-4(E)). What’s worse, City Council has a strong track record of appointing individuals to oversight bodies whose baseline disposition is an openly partisan and hostile attitude towards law enforcement.
Currently, a combination of Internal Affairs (IA) and Officer of Police Oversight (OPO) personnel complete administrative reviews of APD officers’ actions. Internal Affairs personnel are APD sergeants or higher rank who often spent years working as detectives and have at lease a decade or two of experience in law enforcement.
When an officer is accused of a policy violation, an OPO staffer as well as an IA sergeant interview witnesses and the subject officer. The OPO staff member and IA sergeant sit side by side across a table from the subject officer. The subject officer often has either an attorney or a union representative with them. Both the OPO and IA staff review the facts, ask questions, and hear the witness and subject officers’ answers until their fact-finding duties are satisfied.
The facts of the case are then routed for a disciplinary review hearing, or “DRH” that is conducted by APD’s executive staff. A panel of career police executives with strong interest in balancing disciplinary fairness with the need to protect the interests of the Department and community weigh the facts of the case. They decide whether or to what degree to administer discipline.
The benefit of this blended APD / OPO oversight model is that career fact-finders (IA sergeants) bring decades of first-hand experience and knowledge to judge the ins and outs of a subject officer’s actions. While an officer’s answer to a question may not raise the eyebrow of an OPO staff member with no experience in law enforcement, an experienced sergeant will know if something is missing from an answer.
The OPO benefits from this system by being able to appoint any individual they want into the investigative process. Because of the safeguards in place to ensure things like Garrity rights aren’t violated, witnesses are not inadvertently given information they shouldn’t have, or someone deliberately leaks confidential information, the risk that an inexperienced OPO staff member damages a case are minimal.
Further along the spectrum of oversight models is a police oversight organization independent of a department that can investigate accusations of misconduct. For example, San Francisco’s Department of Police Accountability independently investigates such cases.
While this checks the boxes of demands from Austin’s activists, the drawback to an oversight body that is solely reliant on investigative staff with nearly zero investigative or law enforcement knowledge and no help from Internal Affairs experts is, predictably, a complete lack of effectiveness. Reportedly, out of 4,000 cases and $7.8 million in expenses, between 2017 and 2021 the San Francisco Department of Police Accountability’s investigations led to three (3) officers receiving a penalty of a 10-day suspension or worse. That’s $2.6 million taxpayer dollars spent on a single suspension. Austin’s blended OPO / IA investigative process shows much more productive results in the OPO’s annual report.
If an officer under investigation could choose whether to be investigated by a 23 year old sociology graduate with a minimum year of “educational delivery” as investigative experience on their resume or a 50 year old Internal Affairs sergeant, I’d bet they choose the sociology grad. But to each their own.
Then there is the issue of who decides on the level of discipline to administer. Activists have long advocated for taking away disciplinary power from the police chief and giving it to the OPO.
Discipline
The same problems with allowing people with no law enforcement experience to judge the actions of officers appear with allowing them to discipline officers. The stark differences between the OPO’s disciplinary recommendations the discipline that APD chiefs did or didn’t administer in certain cases points to a high degree of unpredictability in discipline should the OPO take over this role.
If you were an officer, you had to last 20-30 years to get your pension, you knew that you will be involved in hundreds of uses of force over your career, but the person judging your uses of force was as predictable as the wind, what would you think your odds were of getting to retirement? Add into that mix that the activists want to eliminate grievances and arbitration (2-15-7), and your odds are probably not good. It’s also probably a solid reason to go work somewhere else sooner rather than later.
A Pension Plan that Gets Everyone in Line with Expectations
“…Some members may prefer the security and simplicity of the defined benefit plan, but we feel that many members, police officers, would actually enjoy the portability and some of the other benefits inherent in a defined contribution plan… (continued)”
Ed Van Eenoo
So how can Austinites and their officers get on the same page with oversight, wages, and still be able to maintain and staff a police force? Easy – allow current and future officers the choice to opt out of the defined benefit plan and into a 401(a) defined contribution plan, which I’ll refer to as a “DC plan.”
Why is this a critically important change?
Like with accounting, a 401(a) allows everyone, activists, City Council, officers, and the public, to mark to market the price for their ideas, demands, and needs.If activists want more oversight and workplace red tape, great; implement it. If the city wants to retain more employees, great; raise wages and find ways to make the workplace more tolerable.
Officers contribute 10% of their salary, and the City contributes 25%.
Officers vest at 25% at 6 months, 50% at 1 year, 75% at 2 years, and 100% at 3 years
If officers leave the JSO to go to a different agency or pursue a different career, they can take their vested funds with them.
Coincidentally, Empower Retirement manages Jacksonville’s plan, the same company that manages APD’s 457(b) deferred compensation plan.
Austin should offer APD officers the same provisions as Jacksonville, and here’s why:
A police force that wants to work for Austin
With a 401(a) system, APD would have a workforce of officers who are at APD because they want to be officers at APD. Under the current DB plan, even the most unproductive or disgruntled officers who no longer want to work for Austin or even still be a cop are financially stuck being a cop in Austin until they can retire.
And taxpayers are stuck with them as well!
Allowing officers to opt into a 401(a) plan would allow people who don’t want to be at APD to collect their retirement funds and leave. If officers don’t like particular changes in oversight, they aren’t financially incentivized to fight the change. They can leave with their entire retirement balance. If they don’t like the chief, no problem. They can work elsewhere else. If an officer wants a different career in public policy, what better experience to bring than prior work in law enforcement?
But what if all the cops leave? Some will, but many won’t. Being able to work all the double overtime someone wants is a strong incentive to stay. In 2022, two out of the five highest paid city employees were APD officers. Besides, state legislators already introduced HB 3421 to lay the groundwork for a takeover of APD by DPS, so either DPS or the Travis County Sheriff’s Office will still respond to 911 calls if APD cannot.
The right pay and benefit levels
Does Austin pay cops too much? Too little? What should raises look like in a 4 year labor contract? These questions are easier to answer with a 401(a) plan.
If Austin needs to increase recruiting numbers, raise pay. If too many officers leave after they vest at 100% at 3 years and Austin wants to retain more officers, raise the pay scales or benefits for experienced officers until turnover declines. Once APD’s workforce stabilizes and Austin has as many officers as it wants, everyone will know that pay levels are where they should be. Taxpayers will know they aren’t getting fleeced, and officers, if they choose to stay, are demonstrating that they are satisfied with their pay, benefits, and can live with the level of oversight.
Better mental health for officers
Working as a first responder puts people at an elevated risk of depression, PTSD, divorce, suicide, and other problems. DB plans make these problems worse by financially strong-arming people into staying longer periods of time in a job that erodes their mental health.
A 401(a) would make it easier for people who no longer want the stress of being a police officer to leave before any problems they are experiencing get worse.
Fitness standards
Should cops be able to pass a physical fitness standard? Should they be required to maintain proficiency in jiu jitsu? Perhaps an easy answer is, “of course, why shouldn’t they?” After all, the military makes no bones about requiring fitness. Those 19 year olds either pass a PFT and carry a pack, or they get kicked out of the military.
The problem is that people typically enter law enforcement at an older age, and humans have a tendency to get old, get slower, develop arthritis, need knee replacements, etc. Having a fitness standard in a defined benefit pension system that requires 23-29 years of service can very severely penalize people simply for getting old. Imagine being 54 years old with a hip replacement and a year away from a DB pension only to get fired because you can’t run a 9 minute mile or do X number of pushups.
APD tried implementing fitness standards through a timed rowing test on a rowing machine. The predictable problem came up of people who were simply too old or physically broken to pass any meaningful standard, so the Department watered down the test until everyone could pass it.
If Austinites want fit street cops who train in jiu jitsu who can handle themselves in a fight without resorting to excessive force, removing financial incentives against a fitness test should be the first plan of action. Offering a 401(a) should be the first step before implementing a fitness requirement. If officers can’t maintain a standard, they can take their retirement funds and work elsewhere.
What would this look like?
“…This would be a voluntary member choice, … , and the City would work to structure a defined contribution plan that was competitive with the defined contribution plan so that the members would have a choice of what retirement solution best met their needs.”
How much could an officer accrue under a DC plan compared to the DB plan? Assuming an officer in the DC plan averages $80,000 in salary per year, a combined 10% employee and 25% City contribution would be $28,000 per year. Compounded monthly at an annual 7.25% rate of return, after 23 years an employee would have a balance of about $1.6 million. This is a similar approximate value to what the DB pension is worth over the same time period.
The difference, though, is that the $1.6 million is in the employee’s control to do with as the employee sees fit, not trapped for life in a DB plan and subject to the decisions of a board of trustees. The employee can roll DC funds into an IRA, buy an annuity that offers a lifetime COLA, or otherwise have more individual freedom and control over the funds than if the money was in a DC plan.
This isn’t the first time a DC plan has been proposed. As the quotes throughout the article above refer to, Austin’s Chief Financial Officer Ed Van Eenoo proposed a DC plan to the 87th Legislature’s Pensions, Investments, and Financial Services Committee in his opposition comments to HB 4368, a bill that was aimed at fixing APD’s DB pension.
Offer the Choice
If the City wants officers to stop fighting against oversight, the city has to stop pitting oversight against officers’ financial interests. The City’s expectations of its officers are mismatched to the retirement plan officers receive.
The only way to remedy this situation is what Ed Van Eenoo proposed, offering officers the choice to opt into a defined contribution plan.
