A new bill makes yet another attempt to crack down
on public pension “spiking,” a bag of tricks that last year famously gave two Contra
Costa County fire chiefs monthly pensions far larger
than their salaries.
The chairman of the Assembly public employees retirement
committee, Ed Hernandez, D-West Covina, wants to add spiking to his reform bills
aimed at regulating “placement agents” paid big fees for helping investment firms get pension
But the anti-spiking bill he introduced last week, AB 1987, could face a lack of support from labor groups, who
may be divided on the issue, as well as criticism from
reformers who think the proposal does not go far enough.
“Employees like our teachers, nurses, firefighters and
police officers deserve an adequate and secure retirement
that is not threatened by a few unscrupulous individuals
trying to fatten their own benefits,” Hernandez said in a news release. “And we owe it to taxpayers to guard against these abuses
and make certain tax dollars are used fairly and equitably.”
The lifetime monthly checks provided by public pensions
are based on age, years on the job and the “final” pay. A common way to spike a pension is to boost the
final pay by cashing out vacation time, administrative
leave and a wide variety of other things.
The Contra Costa Times revealed last year that one
fire chief, age 51, retired with a final salary of about $221,000 and an annual pension of $284,000. Another chief, age 50, retired with a final salary of $185,000 and a pension of $241,000.
A governor’s pension commission report two years ago contained
a response by three of the largest retirement systems
to a list of “30 ways to spike your pension” compiled by Ted Costa of People’s Advocate, a grass-roots sponsor of initiatives.
Pension spiking angers some labor union officials for
two reasons. The usual employer-employee contributions often have not been paid for
the amount of the spike, which means the cost is spread
among all employees in the retirement system.
The publicized spiking, nearly always by management
not rank-and-file employees, appears to be an obvious abuse that
can be used by critics who contend that overly generous
public pensions are too costly for taxpayers.
“It’s really threatening the retirement security of the
vast majority of people in pension systems,” Scott Adams of the American Federation of State, County
and Municipal Employees, AFL-CIO, told a CalPERS forum in Sacramento last month.
“It may not be a huge amount of money,” Adams said of spiking. “But it’s in effect stealing from members to do this. I think
everybody in this room expects the Legislature to come
up with some anti-spiking proposals.”
There have been several cycles of pension spiking reform.
In 1993, the giant California Public Employees Retirement
System backed legislation, SB 53, creating screens and audits to check for spiking.
“From 1994 to today it’s a breath of fresh air,” Ken Marzion, a retiring top CalPERS official told
the forum. “We think our system is working very well. I would encourage
others to use a similar process.”
An anti-spiking bill for the 20 county systems covered by a 1937 act, SB 2003, failed in 1994. The two fire chiefs in Contra Costa County receive
their pensions through a county system covered by the
In a suit filed by Ventura County deputy sheriffs,
the state Supreme Court ruled in 1997 that what some had previously regarded as “spiking” was actually required for the county retirement systems.
Among items the court said were improperly excluded
from final pay: bilingual, uniform, education, meals, leave, holiday,
training, and longevity bonuses. A retroactive increase
was approved for retirees with pensions not based on
the pay items.
Still, a report for the Contra Costa system found that
the pension of one of the fire chiefs, San Ramon’s Craig Bowen, appeared to be improperly based on pay
for administrative leave and vacation time, a spike
“approaching a million dollars over time.”
California offers a unique opportunity for spiking.
A Sacramento Bee investigation reported in 2004 that California was the only state where the pension
is based on the highest salary in a single year, rather
than an average of several years.
Boosting pay by cashing out leave time or briefly taking
a higher-paying job would result in a much smaller pension increase
if “final pay” is an average of the last three years on the job.
The Bee said the one-year rule was a last-minute addition to a state budget agreement in 1990, the price of approval from public employee unions
concerned that accounting changes might shrink retirement
In recent years the Schwarzenegger administration has
negotiated labor contracts that now put most new state
hires under a three-year rule. Among those who still have a one-year rule are the Highway Patrol and firefighters.
The anti-spiking bill introduced by Hernandez last week tightens
the three-year rule. The average is not based on the individual’s pay, but instead on the average pay increase received
by other workers in the same or a similar group.
Pay changes mainly made to increase pensions could
not be used as part of pension-setting final pay. Retirement systems would have to
conduct audits to check for spiking, much like CalPERS.
To curb “double dipping,” the Hernandez bill also requires at least a six-month delay before a person retiring with a public
pension can take another job that provides a public
“The anti-double dipping provision is very good and long overdue,
especially with our state’s high unemployment and an excess of talent that can
fill jobs vacated by those who retire,” said Marcia Fritz, the president of a pension reform
But Fritz said via e-mail the bill gives retirement boards too much “latitude” in deciding whether pay increases close to retirement
are intended to spike pensions. She said any conversion
of time off into cash should not be included in final
Her group, the California Foundation for Fiscal Responsibility,
is trying to gather enough signatures to place an initiative
on the November ballot that would give new state and
local government employees lower monthly pensions and
extend retirement ages.
“We are continuing to raise (money) for signature gathering, but it’s very difficult,” Fritz said. “Polls indicate that voters prefer a 401(k) solution vs. a more modified ‘defined benefit,’ and our (money) supporters are telling us that, too.
A Public Policy Institute of California poll last month
said two-thirds of Californians (67 percent) favor switching new public employees from monthly
pensions, a defined benefit, to the 401(k)-style individual investment plans widely used in the
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/ Posted 22 Feb 10