Pension ‘spiking’ reform may split unions

Support is growing for legislation to curb boosts in final-year pay to get a bigger public pension, a practice called “spiking,” despite recent local setbacks in Contra Costa County, San Francisco and Rocklin.

An “anti-spiking” bill was introduced last week by state Sen. Joe Simitian, D-Palo Alto, a clone of legislation introduced last month by Assemblyman Ed Hernandez, D-West Covina.

Hernandez is the chairman of the Assembly Public Employees Committee. The chairman of a similar committee in the Senate, Lou Correa, D-Santa Ana, is a co-author of the Simitian bill.

State Controller John Chiang is a new sponsor of the Hernandez bill. Chiang sits on the boards of the two large state pension funds, the California Public Employees Retirement System and the California State Teachers Retirement System.

Pension “spiking” got national attention media attention last year when two fire chiefs in Contra Costa County retired, at ages 50 and 51, with pensions far larger than their final salary.
One chief retired with a final salary of about $221,000 and an annual pension of $284,000, the Contra Costa Times revealed, and the other chief retired with a final salary of $185,000 and a pension of $241,000.

How is this possible? Much of the increase comes from cashing out vacation time, administrative leave and other things that boost the “final pay” on which the pension is based, along with years of service and age.

Last week the board of the Contra Costa County Employees Retirement Association voted to prevent the use of boosts in final pay to get bigger pensions, but only for new hires not current employees.

The board’s counsel, Harvey Leiderman, said in January that part of the pay boost for one of the fire chiefs appeared to be improper under two appellate court decisions. He warned of the potential for a lawsuit if board policy does not comply with the law.

At the same meeting, the president of a firefighters association warned of a lawsuit if the board reduced benefits for current or future employees. Retirement benefits for current employees are “vested” rights, protected by court decisions under contract law.

Leiderman argued that employees cannot be vested in a benefit that is an error. At the meeting last week, a union official reportedly told the board that the court decisions cited by Leiderman allow a change in the benefits in question, but do not require it.

Daniel Borenstein, the columnist who revealed the fire chiefs’ pensions, estimated that ending final pay boosts “for current and former workers who have yet to draw their pensions would have immediately saved county taxpayers about $20 million a year.”

In San Francisco, the board of supervisors voted earlier this month to place a measure on the June ballot that would save an estimated $400 million over the next 25 years by trimming pension costs.

New employees would have to contribute 9 percent of their pay to help fund their pensions, up from 7.5 percent for current workers. The pensions for new hires would be based on average pay during the last two years on the job, up from the final year.

Supervisor Sean Elsbernd originally proposed that the pension be based on the final three years on the job, which he estimated would save more than $600 million over 25 years.
But unions opposed a switch to three years, reportedly arguing that the lowest-paid workers would be hit the hardest. Elsbernd joined in a 9-to-1 vote for the two-year plan, a compromise expected to get labor support for the June measure.

The San Francisco Civil Grand Jury said in a report last July that pension spiking “may be institutionalized and ongoing” among police and firefighters. In the last decade, 25 percent of retirees received a pay boost of 10 percent or more in their final year.

The grand jury estimated that the “spiking” cost the city and members of the retirement system $132 million during the period.

If San Francisco voters approve the pension measure in June, the switch to a two-year final pay period is said to require legislation and the approval of CalPERS, which currently only uses one-year or three-year final pay periods.

The giant CalPERS system, covering half the state and local government workers in the state, has a well-regarded anti-spiking program enacted by CalPERS-sponsored legislation in 1993.

Much of the change resulting from passage of the anti-spiking legislation, AB 1987 by Hernandez and SB 1425 by Simitian, could be in the 20 county systems operating under a 1937 act, including the Contra Costa system.

Anti-spiking legislation for the 1937 act retirement systems failed in 1994. The county systems also operate under a state Supreme Court decision in 1997 in a Ventura County suit that requires some pay, previously excluded, to be counted toward pensions.

The anti-spiking bills are broad concepts at this point. Crafting legislation that does not conflict with what some regard as vested rights under the Ventura decision may be one of the complications in drafting detailed legislation.

An innovative provision in the bills would require pensions to be based on the average pay increase in the final three years, not for the retiring individual but for their job group.

Another provision, aimed at “double-dipping,” requires a new retiree to wait at least six months before taking another job covered by a state or local government pension.

The city of Rocklin, near Sacramento, recently boosted the pensions of nine retiring managers by giving them credit for an additional two years of service, then rehired them in their old jobs as part-time employees.

The city says it saves money with part-time pay and no health and pension payments, the Sacramento Bee reported. City Manager Carlos Urrutia gets $170,000 from CalPERS and $139,000 as a part-timer, topping his previous base pay, $230,000.

A reform group that suspended a drive to put a pension reform initiative on the November ballot considered “double-dipping.” But the provision, possibly drawing opposition from local government officials, was not in the proposed initiative.

The anti-spiking legislation seems likely to get mixed reviews from labor. Some concerns have already surfaced in Contra Costa and San Francisco.

“It’s going to run the gamut,” predicted Dave Low, chairman of Californians for Health Care and Retirement Security, a public employee union coalition. “There is probably going to be some opposition and some support.”

In his view, said Low, it’s “absolutely necessary to stop the abuses,” which undermine support for public pensions

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at http://calpensions.com/