A commission created to suggest changes to the state’s pension system was deeply divided over how to solve the issue of “pension spiking.” In fact, the commission could not even agree whether pension spiking exists, or if it is a problem, let alone what the solution should be.
Earlier this year, Gov. Arnold Schwarzenegger issued an executive order creating the Post Employment Benefits Commission, charged with identifying problems and suggesting changes to the state’s pension and retiree healthcare systems. For months, the commission has been holding meetings throughout the state, listening to hours of testimony from stakeholders in the pension debate.
But the most recent meeting of the commission in Sacramento this week underscores just how deep some of the divisions are on key issues, and just how difficult changing the pension system may be.
Tuesday’s meeting started off with choruses of virtual anonymity, with all of the commissioners agreeing to ways to increase transparency and openness in the pension systems. But the morning’s consensus on the panel quickly deteriorated when the subject of “pension spiking” was raised.
The term spiking is commonly used to refer to dramatic increases in an employee’s pay shortly before retirement, for the primary purpose of boosting that employee’s pension. In many retirement systems, particularly in city and county governments, a retiree’s pension is calculated by taking a percentage of an employee’s highest 12 months worth of salary.
Recently, through collective bargaining, the state has moved to using a three-year average of highest salary to determine an employee’s pension. Many would like to see the three-year-average used on the local level as well. But the carefully worded recommendation from the commission staff, and the spirited dialogue that followed, showed just how difficult it will be to make those changes on the local level.
The commission will not suggest that a remedy for pension spiking be sought through legislation. The recommendation introduced this week from staff merely suggested that local agencies attempt to “bargain a return to a three-year” average through the collective bargaining process.
But even that suggestion was criticized by labor’s representatives on the commission.
“I’m totally opposed to this,” said Jim Hard, president of SEIU Local 1000. “I don’t think this is an appropriate recommendation.
Robert Walton, who worked for CalPERS for more than 30 years, said the recommendation was “symbolic at best,” but did say that the commission should try to find a way to address the pension spiking issue.
At one point, commission chairman Gerry Parsky summed up the discussion among committee members. “I gather that this commission is not inclined in that direction,” he said.
But others on the commission, particularly Anaheim Mayor Curt Pringle, tried to keep the spiking discussion alive. In the end, after the meeting, Pringle held out hope that some common ground could be reached.
“I think that the goal here is to find common ground,” said Commission spokeswoman Ashley Snee Giovannettone. “Hopefully staff will be able to come back with something that everyone on the commission can agree to.”
The issue underscored why some say it will be difficult to get any meaningful changes to the pension system through the Legislature. Earlier in the day, there was wide agreement on a host of issues involving increased transparency and independent audits of state pension systems. But on core issues like pension spiking, which have been written about in the media, there are still deep divisions.
That poses a particular challenge for Parsky, who is charged with corralling the commission members into agreement. Giovannettone said there is “no formal procedure” for determining final recommendations of the commission. But, she said the chairman “is striving for consensus.”
Also at Tuesday’s meeting, the commission appeared to agree to new, independent financial audits of STRS and PERS every three years. The audits would be conducted by a new advisory panel within the office of the state auditor.
Both retirement systems hire independent auditors annually to review their financial portfolios, but the commission agreed that, because those independent auditors are still hired by the pension systems, an additional public audit could “promote transparency and public confidence” in the pension systems.
The staff also recommended the commission support the concepts in three Assembly bills aimed at cracking down on pension fraud. All three bills had been held in legislative committees until the commission finished its work.
Assembly Bill 36 by Roger Niello, R-Fair Oaks, would create jail sentences of up to one year for anyone who knowing defrauds a state pension system. Assembly Bill 219 by Assemblyman Kevin Jefferies would require anyone collecting a disability pension to submit to a medical examination within the first three years of collecting the pension. Assembly Bill 545 by Mimi Walters, R-Laguna Niguel, would authorize PERS to contact a health insurance provider to help determine whether a person is eligible to collect disability benefits.
Tuesday’s meeting was the third consecutive meeting in which the commission discussed recommendations from the staff. “The staff came up with some draft recommendations based on the hours of testimony that the commission has heard over the last several months,” said Giovannettone.
It will be up to the commissioners to wade through those recommendations and formulate a comprehensive report, which is due to the Legislature and the governor by January 1.