CHINO — Proposed legislation may curb “spiking” that has made county retirement systems notorious for providing pensions that exceed salaries earned on the job, a legislative committee was told last week.
After the Contra Costa Times revealed that two fire chiefs retired at ages 50 and 51 with pensions well above their salaries, one of them told the Wall Street Journal: “People point to me as a poster child for pension spiking, but I did not make these rules.”
The Los Angeles Times reported last month that a Ventura County chief executive earning $228,000 retired last year with a $272,000 pension — one of 84 percent of the system’s $100,000 and above pensioners receiving more now than earned on the job.
The 20 independent county retirement systems operating under a 1937 act include Los Angeles, the nation’s 34th largest public pension with 156,000 members and $40 billion in assets, and Mendocino with 1,953 members and $350 million in assets.
The California Public Employees Retirement System, which covers about half of the non-federal government employees in the state, sponsored anti-spiking legislation in 1993 making it more difficult to manipulate final pay used to determine pension amounts.
Similar legislation for the county systems cleared the Senate in 1994 but died in the Assembly. In 1997 the state Supreme Court issued a unanimous ruling in a suit filed by Ventura County deputy sheriffs that opened the door for more spiking.
The court said that in addition to the salary any cash commonly received in a pay grade or class for other things, such as uniform allowances and unused vacation time (but not overtime), must be counted toward pensions under the 1937 act.
The ruling was made “even though through the previous years in collective bargaining the counties and their members had agreed that these additional bonuses would not be treated as pensionable, which is how they got them over base salary in the first instance,” Harvey Leiderman, a fiduciary counsel, told the legislative hearing.
The court ruling created pension debt because annual contributions by employers and employees had not been made for pensions based on the additional pay. To cover the new “unfunded liability,” many county systems dipped into reserves built up over years.
“As a result reserves that had been allocated to cover unfunded liabilities created by the Ventura decision were no longer available to mitigate the negative investment experience that happened with the dot-com bubble,” Richard Stensrud, State Association of County Retirement Systems legislative chairman, told the committee.
A stock market led by high-tech stocks boomed in the late 1990s before plunging. What became known as the “dot-com bubble” burst, punching holes in investment funds expected to provide two-thirds of the money needed by many pension systems.
Later court rulings made the Ventura decision retroactive, boosting the pensions of some persons who had already retired. Several counties made court-approved settlements before the Ventura decision, adding to the legal complexity.
Unlike the state pension systems — CalPERS, the California State Teachers Retirement System and UC Retirement — many county systems declined to release the names and pensions amounts of retirees receiving more than $100,000 a year.
In an unbroken string since 2009, seven county retirement systems have lost separate lawsuits seeking information about how pension funds are spent. The suits were filed by several newspapers and reform, taxpayer and freedom-of-information groups.
Superior courts have ordered disclosures by retirement systems in Contra Costa, Stanislaus, Orange, Ventura, San Diego, Sacramento and Sonoma counties, upheld by appeals court decisions in San Diego, Sacramento and Sonoma.
The Los Angeles Times report last month, which focused on information from Ventura and Kern counties, said most of the other 18 county systems resisted requests for pension information or said it would be too costly or laborious.
“Some have asked to be paid for extracting the data — $63,000 in the case of Sacramento County,” said the Times story. The county association legislative chairman, Stensrud, also is the Sacramento retirement system chief executive.
He told the legislative committee the association, working with other stakeholders and legislative staff, backs a bill, AB 340, that would focus on the conversion of additional pay items to cash during the period that determines pension amounts.
Stensrud gave the example of an employer-employee agreement to switch employer-provided health care to a cash “allowance” for health care. The Times story said Ventura County has 60 categories of additional pay that can be converted to cash.
“By focusing on those pay elements, and particularly at that late career stage where it can have that impact, we believe there is a method for getting at spiking, even for current employees,” Stensrud said.
A widely held view is that a series of court decisions means that state and local government workers in California have a “vested right,” protected by contract law, to retirement benefits offered at the date of hire.
“They are entitled to any improvements, but the law protects them from detriments,” said Leiderman, the fiduciary counsel. As a result, most cost-cutting pension reforms are limited to new hires.
Stensrud said the bill authorizes the retirement system to take a “hard look” at final compensation and to be the “spiking police person.” He suggested the new role might need more independence from the “dominant employer.”
On the nine-member county retirement boards, four members are appointed by county supervisors, four are elected by active and retired members and one is the country treasurer or the equivalent.
Gov. Brown’s 12-point pension reform plan calls for more pension board independence and financial expertise. Anti-spiking provisions in the plan would calculate pensions on a three-year average of base pay.
One of the two Republicans on the six-member legislative committee, Sen. Mimi Walters of Laguna Niguel, repeated her call for a vote on the governor’s plan. “I’m worried that perhaps there are some backroom deals going on,” she said.
She referred to remarks by an absent committee member, Assemblyman Michael Allen, D-Santa Rosa, who told a local pension forum the committee was working with the governor’s finance department on a “hybrid” pension plan for new hires.
Sen. Joe Simitian, D-Palo Alto, said his “hope and expectation” is for a reform plan, before the end of August, that all committee members can support. He said lawmakers should have the “house in order” before voters consider a tax increase in November.
The committee co-chair, Assemblyman Warren Furutani, D-Gardena, concurred with the need to have the “house in order” to get new revenue. “Unions and other stakeholders critical of this process — it’s not something we are going to do independent of your ideas and feedback, but there is a broader context for all,” he said.
Mark Klein of SEIU Local 721, with members in six retirement systems, urged the committee to avoid a “one-size-fits all” plan, make changes through collective bargaining and provide an offsetting benefit if employee contributions are increased.
“Everybody talks about a pension crisis,” said Klein. “There is a retirement crisis. There is a revenue crisis. There is an economic crisis. There’s not a pension crisis.”
Ed's Note: 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/