*Note: This story has been changed and corrected from an original version.
CalPERS and CalSTRS aren’t the only pension funds facing problems in the down economy. The pension system of the San Francisco Bar Pilots could be facing a multimillion-dollar shortfall in coming years.
This has caused a dispute between the organization representing the 58 San Francisco Bar pilots, who guide ships to the various ports around the Bay, and shippers, who ultimately pay the cost through pilot fees. Both groups are big political donors, and their disagreement could ultimately play out in the Legislature.
The bar pilots are a highly-paid but obscure group to most, rarely making the news except in the case of accidents like the November 2007 collision of the Cosco Busan with the Bay Bridge, which spilled 54,000 gallons of fuel into the Bay. They are private contractors whose pay and benefits are determined by state law, an arrangement that dates back to the Gold Rush.
Pacific Merchant Shipping Association (PMSA) points to a report about the system by EFI Actuaries on behalf of the Board of Pilot Commissioners, which shows a significant shortfall in the pilots’ “pay as you go” pension system. According to PMSA vice president Mike Jacob, current pilots are paying in only $4 million a year. This figure would need to rise to $16 million in order to keep the system solvent over the long term, he said. Over another three decades, he added, this shortfall grows to a quarter billion dollars—all for a workforce of a few dozen people.
“The pilots are extremely professional and good to work with, and on issues of mutual concern, like this pension liability, I have no doubt we’ll be able to sit down and have a good discussion about all the options that are out there,” Jacob said. “We’ve had a good working relationship with the pilots for years, and they even helped to put together this actuarial study request at the Board – so I think everyone is very aware of this pension liability and knows that we’re going to have to sit down soon and see what can be done to address it.”
The Pilot Commissioners counter that any increase in fees is minor compared to the huge revenues and profits being made by the shippers. Capt. Peter McIsaac, president of the San Francisco Bar Pilots Association, said the shippers are using the down economy as an excuse to get a better deal.
“The pension plan for the San Francisco Bar Pilots was agreed to and promoted by the shipping industry as a fair compromise in 1992,” McIsaac said, adding “We believe the pay and pension for pilots, a fraction of what shippers pay in port costs, is appropriate.”
Unlike many pension shortfalls these days, the problems are not the result of investment losses. The pension is a “cash account” system, basically a huge bank account paying interest. This shielded it from the mortgage and stock market meltdown.
But the industry was not shielded from the down economy overall. At the peak of the financial bubble in 2006, the pilots guided over 9,900 ships – over two dozen a day – through San Francisco and San Pablo Bay. This year, with consumer spending way down, they’re on course to take fewer than 8,400.
“This was not an issue in 2006, and frankly our income was not an issue, because their other option was stopping ships coming in October,” McIsaac said.
This change has driven down pilot salaries, from $490,000 in 2006 to $450,000 last year and a projected $405,000 this year. One result is lower payments by the 58 current pilots to fund their own future pensions, as well as ongoing benefits for 34 disabled and retired pilots and 26 surviving spouses.
Of course, salary drops that total more than a lot of people make in a year aren’t likely to spur a lot of public sympathy. This is another issue that the PMSA has brought up—that the San Francisco bar pilots make higher salaries than pilots in other ports.
It can be hard to gather data on an industry that employs so few people, spread across so many areas, working for a hodge-podge of public and private entities. But the San Francisco pilots do appear to be at the top of a select group. In April, the Crescent River Port Pilots Association, representing pilots working the ports at the mouth of the Mississippi River, negotiated a raise from $359,000 to $379,000.
In both New York — whose system, incidentally, dates from 1679 — and Long Beach, the pilots are employed by a private service, and have a 401K or similar plan instead of a pension with guaranteed benefits. The PMSA’s Jacob says the San Francisco pilots’ pension system, a private, defined benefit plan, is extremely unusual in any profession these days.
The bottom end of the financial spectrum are the pilots at the Port of Los Angeles, all but two of whom make $197,943.44 a year. These pilots are city employees who get a standard public employee pension.
But the San Francisco Bar Pilots bristle at comparisons to LA. For one thing, they note, the San Francisco pilots pay for their own health insurance, at a cost of about $22,000 a year. They also bear personal liability for accidents, which LA pilots do not outside of cases of willful misconduct.
McIsaac also points out that the LA pilots deal with 6.1 miles of shipping lanes and a single deepwater port. San Francisco pilots must know 200 miles of shipping lanes and be able to navigate 10 ports, not just Oakland and San Francisco but Monterey and more inland destinations like Stockton. LA pilots also work fewer days a year, he said use 143 compared to 172.
Pilots can also have relatively brief careers. At the very youngest, they start in their mid-30s, and older is more typical. They have to give up shipmasters jobs paying $150,000 or more a year to work two to threes years as apprentices making only $60,000.
Shifts can run 12 hours or more, and can include climbing six-story ladders in high seas in order to board ships. A San Francisco pilot hasn’t been killed on the job since 1986, but one did have a leg crushed between a ship and a pilot boat three years ago and was forced to retire. Four pilots died on the job over an 18-month period from late 2005 to early 2007, one each from Boston, Galveston, Hawaii, and Portland—a high death rate for a work force comprised of just a few hundred people.
The pension issue is likely to heat up in November, when the Bureau of State Audits is set to release a full audit of the system. The PMSA also faced off with the bar pilots this year over SB 300. The bill by Senator Leland Yee, D-San Francisco, allocated $240,000 additional dollars from the shippers to pay for $4,000 laptop navigation systems for each pilot. The PMSA was able to negotiate this fee from an ongoing cost down to a one-time charge.
*The original version stated pilot John Joseph Cota faces "a long prison sentence" after being found to be under the influence of drugs at the time of the accident involving the Cosco Busan. Actually, Cota faces a 10-month sentence for two misdemeanor counts, but was not found to be under the influence of drugs or alcohol at the time of the accident.