CalPERS & CalSTRS: cracking down on ‘spiking’

In a settlement of a wrongful firing, a suburban San Diego water district agreed six years later to put its former general counsel back on the payroll for one year at $222,000, with a leave of absence that left him free to take another job.

The rancorous firing of Thomas Harron and six others by the Otay Water District in 2001 was alleged to be a race-based purge. A lawsuit contended that a district board member said: “We got to get rid of all of the gringos.”

Harron acknowledged during a CalPERS board hearing yesterday that the one-year return to the payroll in February 2008, with a prohibition against returning to district offices, was intended to increase his pension.

A reform group’s listing of public pension retirees in the “100,000 Club” shows Harron with a $103,575 pension from the water district. CalPERS estimated the additional year would boost his pension by about $36,000 a year.

But CalPERS staff denied the increase for the additional year. Harron appealed the decision, arguing that he placed a call to CalPERS on the morning of the settlement in 2007 and was told the additional year would count toward his pension.

“The only reason I did this is because CalPERS said ‘yes,’” Harron told the CalPERS board yesterday by telephone from San Diego. “If they had said ‘no,’ I would have said I want cash or some other kind of structure to the settlement.”

CalPERS lawyers said Harron apparently misunderstood call-center staff and, as an experienced lawyer, should have sent the California Public Employees Retirement System a copy of the settlement and awaited official confirmation.

The CalPERS board yesterday voted to uphold an administrative law judge’s denial of the additional year. The board also rejected the judge’s attempt to give Harron a consolation pension boost by setting his retirement date two years earlier.

Board member Tony Oliveira said the “false employment” seemed to be the “epitome” of what is known as “spiking,” manipulation to boost pensions. He asked Harron why he “ever thought that could be legal.”

Harron said he had heard of similar pension boosts in county systems operating under a 1937 act. He said he confirmed that with a legal expert who serves several county systems.

“I knew it was a common practice,” Harron said. “I just didn’t know if CalPERS accepted that practice.”

The 20 county retirement systems that operate under the 1937 act are notoriously generous. When CalPERS sponsored legislation two decades ago that tightened its spiking controls, similar legislation for the county systems failed to pass.

The door for spiking opened wider in 1997 when the state Supreme Court ruled in a Ventura County suit that nearly all types of pay except overtime must be counted toward 1937 act pensions, including cashing out unused vacation time and sick leave.

The Contra Costa Times reported in 2009 that two Contra Costa fire chiefs, ages 50 and 51, retired with pensions well above their final pay. For one chief, the final salary was $221,000 and the pension $284,000 a year.

In Sonoma County, a former county auditor-controller-treasurer who retired in May at age 59 has a $254,625 annual pension, $46,600 more than his final pay, the Santa Rosa Press Democrat reported last month.

The newspaper filed a lawsuit that forced the Sonoma County system to release pension payments. Since 2009 there have been seven separate superior court decisions, upheld by three appeals court, ordering county systems to release pension records.

Because of recent court decisions, CalPERS will begin releasing more detailed pension information when requested under the public records act, Peter Mixon, CalPERS general counsel, said yesterday.

Without being forced by a lawsuit, CalPERS gave Marcia Friz’s reform group the names and pension amounts of retirees receiving $100,000 or more a year and has provided some updates.

“Now we will include those two items plus the last employer and the position that the member held,” Mixon told the board. “We will be providing a breakdown of the calculation, which typically includes years of service, salary and COLAs (cost of living adjustments).”

The California State Teachers Retirement System also voluntarily released retiree names and pension amounts. But it was criticized earlier this year for not doing enough to control spiking.

The Sacramento Bee reported that a whistle-blower, Scott Thompson, was fired by CalSTRS executives who claimed he reduced a pension without authorization and refused to restore it.

A Bee analysis found that nearly half of the 225 Sacramento area retirees drawing six-figure CalSTRS pensions received at least a 10 percent pay raise in one of their final three years. Some of the raises were 20 percent or even 40 percent.

The CalSTRS board pushed for amendments that would have removed most current teachers from an anti-spiking bill, leaving the new controls to apply mainly to new hires and highly paid administrators.

Last month CalSTRS announced a new “pension abuse reporting hotline” (855-844-2468) and a new “compensation review unit” that will look for pay changes that may signal spiking.

“Over the last fiscal year, an anti-spiking task force within CalSTRS has ´the ball´ on controlling pension spiking,” the CalSTRS board chairwoman, Dana Dillon, said in a news release. “Today’s actions put CalSTRS at the forefront of efforts to prevent, detect and correct incidents of spiking.”

This month 34 retired Yuba Community College teachers began receiving a 10 to 15 percent cut in their pension checks after CalSTRS ruled their salaries had been overstated in “alleged spiking,” the Appeal-Democrat in Marysville reported last week.

The college said it had CalSTRS approval for a cost-cutting move begun in 2003 that gave teachers nearing retirement lower pay for a lower workload, with the incentive of a separate “stipend” of 10 percent of their pay and no reduction in their pensions.

“We really perceive this (the CalSTRS reversal) to be they are scrutinizing everyone that comes through now because of the public scrutiny of pensions,” Al Alt, Yuba College vice chancellor, told the newspaper.

CalSTRS announced last week that Yuba incorrectly reported pay resulting in 44 retirees receiving a total of $844,000 in “pension overpayments, otherwise known as pension spiking.”

Jack Ehnes, CalSTRS chief executive, said in a news release: “CalSTRS takes pension spiking very seriously. We adhere to thorough and comprehensive processes while reviewing any suspected spiking cases prior to changing a member’s pension payment in a manner consistent with the law.”

But Bee editors said CalSTRS, which wants Gov. Brown to boost its funding, needs more than the hotline and the pay review unit before receiving a “blank check.” An editorial last Sunday urged a “top-to-bottom audit” of CalSTRS.

“Following the pay scandal at the city of Bell, CalPERS began a comprehensive review of all high-end pensions it pays out,” said the Bee editorial. “CalSTRS should do the same. Special attention should be paid to pensioners who retired in their 50s with annual retirement incomes of $100,000 or more.”

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 20 Oct 11

19 Responses to “CalPERS & CalSTRS: cracking down on ‘spiking’”

  1. jskdn Says:

    Aligning pension entitlements with how pension funds are funded (payments received and earnings) could take care of this problem and many others. Spiking is an exploitation of the existing disconnect. Final salary does not represent the money a pension fund has received on behalf of pensioner.

  2. Tough Love Says:

    Quoting …”A reform group’s listing of public pension retirees in the “100,000 Club” shows Harron with a $103,575 pension from the water district. CalPERS estimated the additional year would boost his pension by about $36,000 a year.”

    Assuming he is about age 55, the “value” (expressed as a lump sum TODAY) of the EXTRA $36K annually (WITH COLA increases) is about 22x$36K=$792,000.

    CALPers should never allowed a “settlement” that impacts it’s Pension system’s funding. If the Water district screwed up, the FULL settlement should have come out of it’s budget.

    But then again, it’s quite likely these Plans will fail at some point, so maybe it will turn into a worthless settlement.

  3. Rex The Wonder Dog! Says:

    The only shocking part is trhat they DIDN’T allow it.

  4. Dr. Mark H. Shapiro Says:

    Spiking problems most often occur with local agency employees. State employees have operated under much stronger anti-spiking rules for years.

  5. jskdn Says:

    The net present value of $36,000 a year for someone who is 55 (probably not his retirement age but used in the above example) and, according to the actuarial tables of Social Security, has a 25 years of life expectancy left, is about $400,000, if you use the discount rate of 7.5% used by CalPers. It’s more than that if you use a lower discount rate or you put in an inflation factor. If the water district paid that much to CalPers for that one added year that engendered that additional pension amount, the pension fund actually earns 7.5% and there is no inflation factor, then the added benefit is aligned with the funding that CalPers needs to meet the pension obligation. If not it is taking money from other people, taxpayers or other pensioners.

  6. SeeSaw Says:

    Dr. Mark, most local entities, except the large cities are members of CalPERS. They are bound by the same CalPERS rules as State employees. The egregious spiking occurs mostly with the 37 Act County Plans.

  7. Rex The Wonder Dog! Says:

    The net present value of $36,000 a year for someone who is 55 (probably not his retirement age but used in the above example) and, according to the actuarial tables of Social Security, has a 25 years of life expectancy left, is about $400,000, if you use the discount rate of 7.5% used by CalPers.It’s more than that if you use a lower discount rate or you put in an inflation factor.
    ===
    Totally false.

    #1- the discount rate of return is not going to be anywhere near the 7.75% benchmark. The last 10 years the ROI has been just 2.41%, while that may be low, it is not going to come close to the benchmark, and 5% is a good number to use.

    #2- the CalTURDS pensions are indexed against inflation. So you MUST include inflation. Why you would use a number not indexed for inflation when that is a known fact??? Makes your estimates way off the mark.

    As someone above said, the amount paid in by the employee and the employer are a great place to start a base for a pension amount.

  8. Rex The Wonder Dog! Says:

    Dr. Mark, most local entities, except the large cities are members of CalPERS.
    ==

    I believe there are 20 independant/local 1937 Act pensions.

  9. jskdn Says:

    Sorry Rex, what is false about the math, which, as it wrote, is dependent on both having the kind of return CalPers uses and doesn’t include an inflation factor. I don’t assume either of the later conditions to reflect reality. I don’t know how the inflation adjustments work and wanted to give some idea of the net present value of government pensions even under conditions better than are likely to exist. Unfortunately most people just don’t understand just how valuable the pensions those working for the government are receiving. I wish there were better comparisons with the kind of retirement most people face.

  10. Rex The Wonder Dog! Says:

    Gov pensions are a scam.

  11. Dr. Ted Steele Says:

    Poor Poodle boi is waaaay out matched here with all these adults in the room ! LOL

  12. SeeSaw Says:

    Rex, I do believe that the 37 Act plans are all county plans–not municipal plans. Most of CA’s municipalities, except the big cities, ie, LA, SD, SJ, and SF are members of CalPERS and subject to the same anti-spiking policies, as the state employees. I am proud to say that my own pension was caluculated on my base salary, only. I oppose pension spiking.

    You are free to state your opinion–it is your opinion that government pensions are scams–your opinion is not a fact. My opinion is that, government pensions are beneficial in keeping retirees as members of the middle class. Without my pension, I would be poor, by the time funds ran out, to cover my bills.

  13. Rex The Wonder Dog! Says:

    Rex, I do believe that the 37 Act plans are all county plans–not municipal plans.
    ============
    Nope. The City of San Diego is a 37 Act plan, as is Long Beach.

    It is a combination of county and City and special districts (I may be wrong on special districts-like Water Dsitricts).

    ED MEdnel actually has teh total number of 37 Act plans in one of these blog articles, I just cannot recall which one or exactly many.

  14. Rex The Wonder Dog! Says:

    Rex, I do believe that the 37 Act plans are all county plans–not municipal plans.
    ============
    Nope. The City of San Diego is a 37 Act plan, as is Long Beach.

    It is a combination of county and City and special districts (I may be wrong on special districts-like Water Dsitricts).

    Ed Mednel actually has the total number of 37 Act plans in one of these blog articles, I just cannot recall which one or exactly many.

  15. Rex The Wonder Dog! Says:

    Poor Poodle boi is waaaay out matched here with all these adults in the room ! LOL

    ==
    Rex is no PODDLE Teddy Steal, here is my freshman pic from HS;

  16. SkippingDog Says:

    Long Beach is a CalPERS city. San Diego’s independent plan was established by its own Charter, just like LA and SF.

    The ’37 Act applies to Counties, not cities or special districts. That’s why it’s calls the “County Retirement Act of 1937.”

    Here’s a quick brief on it from the Sac retirement board:

    Existing Law

    Under existing State law a county may provide retirement benefits to its employees in three ways. It may: (1) establish an independent system, (2) contract with the California Public Employees’ Retirement System (“CalPERS”), or (3) establish a system under the County Employees’ Retirement Law of 1937 (California Government Code Section 31450 et seq), commonly referred to as the “1937 Act.”

    Independent Systems

    Article XI, Section 1 of the State Constitution authorizes general law counties to provide for the number, compensation, tenure and appointment of employees. In addition, Article XI, Sections 4 and 6, authorizes charter counties and charter cities and counties to establish independent retirement systems if their charters so provide. San Luis Obispo County and San Francisco City and County have established such systems.

    CalPERS System

    In 1939 the Legislature authorized employees of counties (and other public agencies) to join CalPERS at the individual county’s option. Currently 37 counties contract with CalPERS. They are Alpine, Amador, Butte, Calaveras, Colusa, Del Norte, El Dorado, Glenn, Humboldt, Inyo, Kings, Lake, Lassen, Madera, Mariposa, Modoc, Mono, Monterey, Napa, Nevada, Placer, Plumas, Riverside, San Benito, San Francisco (Limited), Santa Clara, Santa Cruz, Shasta, Sierra, Siskiyou, Solano, Sutter, Tehama, Trinity, Tuolumne, Yolo and Yuba.

    The 1937 Act Systems

    The Legislature initially authorized a retirement system for county employees with the enactment of the County Employees’ Retirement Law of 1919. This law was replaced by the 1937 Act, and was eventually repealed in 1947.

    The 1937 Act provides for retirement systems for county and district employees in those counties adopting its provisions pursuant to Section 31500. Twenty California counties operate retirement systems under the provisions of the 1937 Act. These are separate entities, separate and apart from each other and CalPERS.

    The 20 counties are: Alameda, Contra Costa, Fresno, Imperial, Kern, Los Angeles, Marin, Mendocino, Merced, Orange, Sacramento, San Bernardino, San Diego, San Joaquin, San Mateo, Santa Barbara, Sonoma, Stanislaus, Tulare and Ventura. Los Angeles, in 1938, was the first county to adopt the 1937 Act provisions. Imperial was the last, establishing its system in 1951. Most of the member counties created their systems in the middle 1940’s.

    The 1937 Act was enacted to recognize a public obligation to county and district employees who become incapacitated by age or long service in public employment and its accompanying physical disabilities by making provision for retirement compensation and death benefits as additional elements of compensation for future services and to provide a means by which public employees who become incapacitated may be replaced by more capable employees to the betterment of the public service without prejudice and without inflicting a hardship upon the employees removed.`

    The 1937 Act provides two methods by which a county may establish a 1937 Act retirement system: (1) an affirmative vote by a majority of the electors voting on the proposition at a general or special election, or (2) by a four-fifths vote of the board of supervisors. Once a county elects to come under the 1937 Act, the Act’s provisions become operative on either the following January 1, or July 1, but not sooner than 60 days after the appropriate election. A system established pursuant to the 1937 Act supersedes any previously established county retirement system.

  17. Logan Says:

    The discount rate for valuing benefits is not necessarily the same rate used to discount the liability for funding purposes.

    7% is a pretty common discounting rate used with group mortality tables for calculating the actuarial equivalent of a monthly life annuity.

    And, the effect of annual cost of living increases on the value of a life annuity may be approximated by reducing the discount rate by the average long-term cost of living rate.

    3% is a common assumed long-term cost of living rate, and subtracting 3% from 7% is 4%.

    A $36,000 annual life annuity calculated using the Annuity 2003 Mortality Table from IRS Revenue Ruling 2002-62 Appendix B at 4% results in an actuarial present value of $621,785.

    By the way, I am not anti-government pensions by any means. I am a member of a public defined benefit plan, and the actuarial present value of the annual life annuity I have earned is $412,740.

  18. ocsays Says:

    Rex, Mark Landsbaum at the OCR Orange Punch blog, wrote that you keep leaving annoying voicemails for him. Something to do with your dissatisfaction and your refusal to post using facebook. Dr. Ted Steele is correct when he says you are way out of your league here.

  19. Phillip Molina Says:

    The problem is with one rule fits all. In my case, a Federal jury decided that I had been fired in violation of my Civil Rights. I informed the Council of facts, which two council members did not want the others and the public to know including dealings where a preferred developer wanted the City to accept “exotic foreign currency” to pay his impact fees. I said NO and that put the nails on my working in Oxnard. I was told that 2 council members are after me with “big guns” and when I told the Council that the City’s golf course was being subsidized by the City’s general fund, I “buried myself”.

    A final settlement from a Federal Judge allowed me to identify a portion to be covered a “PERSible” for purposes a trying to make me whole for my lost time and benefits.

    CalPERS, however, used their “interpretation of GC 21198″ to void that part of the settlement. Thus giving those who did not want the public to know the truth a final word to me and all other Oxnard workers who might want to tell the truth but cannot afford to do so.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


Follow

Get every new post delivered to your Inbox.

Join 268 other followers

%d bloggers like this: