Two amendments pushed by the CalSTRS board would remove most current teachers from coverage by a bill aimed at curbing spiking, the manipulation of final pay or service credits to boost pensions.
A pay cap would be changed to apply mainly to highly paid administrators, not teachers, and to cover new hires, not current employees. A limit on the types of pay used to calculate a pension also would be changed to apply only to new hires.
The California State Teachers Retirement System board, dominated by teacher representatives, acknowledged that protecting teachers is part of the goal of the changes said to be needed to avoid administrative problems and legal challenges.
“Given the climate, the context and the speed at which this issue in particular is moving, I think it would be in the board’s best interest to take a position that would have the least harmful effect on our members,” said Harry Keiley, the board vice chairman.
The CalSTRS board, on split votes, approved the push for the amendments early last month two days after the anti-spiking bill, SB 27 by state Sen. Joe Simitian, D-Palo Alto, was approved by the Senate 39-to-0.
“I think the cap can be structured so that it would never be as detrimental as what’s being proposed,” said Dana Dillon, the board chairwoman.
A similar Simitian bill last year moved through the Legislature with broad bipartisan support but was vetoed by former Gov. Arnold Schwarzenegger. He liked the bill, but said it was tied to a troubled anti-spiking bill for county pension systems.
The latest round of anti-spiking legislation was sparked by a Contra Costa Times report of spiking in a county system. Two fire chiefs, ages 50 and 51, retired with pensions far above their pay — in one case, final pay $221,000 and pension $284,000.
One chief was rehired as a consultant. A curb on “double-dipping” in the Simitian bill, a 180-day delay, is opposed by local government groups, who say keeping retirees on the job is needed for training replacements and for jobs requiring scarce skills.
This year a new and potentially improved anti-spiking bill for the 20 county retirement systems operating under a 1937 act, AB 340, is not linked to the Simitian bill covering CalSTRS and CalPERS.
Since the CalSTRS board decided to push for changes in Simitian’s bill, spiking at CalSTRS has moved into the spotlight in two reports this month in the Sacramento Bee.
A whistle-blower, Scott Thompson, was was fired by CalSTRS executives who claimed he reduced a pension without authorization and refused to restore it. A retired CalSTRS specialist told the Bee Thompson is a “hero” because spiking was “common knowledge” and nothing was done.
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.
CalSTRS is different from most California public employee retirement systems in several important ways.
The CalSTRS board lacks the power to set annual contribution rates that must be paid by employers, needing legislation instead. Teacher unions can bargain for pay but not for pensions, which also are set by legislation.
Teachers do not receive Social Security. A decade ago CalSTRS became a “hybrid,” adding to the pension a 401(k)-style investment plan guaranteed to earn at least the 30-year Treasury bond rate, more in a good year.
A view that the retirement plan for teachers was inadequate, until a series of improvements around the time the 401(k)-style supplement was added, may have led to a tolerance at CalSTRS for what some might regard as spiking
The giant California Public Employees Retirement System sponsored its own anti-spiking bill, SB 53 in 1993, and has a compensation review unit that checks for spiking, which has not been among the well-publicized issues at CalPERS in recent years.
CalSTRS, on the other hand, had a verification unit that was disbanded as automated databases were installed, beginning in fiscal 1988-89. Now in an era when public pensions feel under attack, spiking is getting another look.
The CalSTRS board was told last week that a new compensation review unit is being developed. The unit will require additional staff and will probably look at about 5,000 cases a year.
The CalSTRS staff has given the board three reports on spiking prevention this year, beginning in February. Anyone wondering if spiking has been institutionalized at CalSTRS could look at evidence in the reports:
–After 25 years of service, the period of pay used to calculate a pension is switched from a three-year average to a single year.
–Unused sick leave is counted as part of the years of service.
–Automated checks that replaced the verification unit are generous, not triggered until pay creases are 15 percent and special pay exceeds $15,000.
–Only 141 audits were conducted during a three-year period, recovering more than $3 million in overpaid benefits.
–Pay found to be intended to boost pensions is not disallowed for all retirement credit, but instead goes into the 401(k)-style investment plan.
–Pay for auto allowances, performance bonuses and cash in lieu of health benefits can be counted for pensions.
–Pay for overtime and summer school, once not credited for retirement, now goes into the 401(k)-style investment plan.
In the amendments to the anti-spiking bill, the CalSTRS board would replace a cap on pay increases used to calculate pensions, 25 percent over five years, with a cap on the total pay, about $147,000, a salary rarely reached by teachers.
CalSTRS staff said the five-year average would be difficult to administer and require about 12 additional staff. The estimated cost for “one-time technology and training” is about $5.1 million.
The CalSTRS board wants the pay cap to apply only to new hires to keep promises to current workers and for legal reasons. The board’s lawyer thinks that imposing the pay cap on the pensions of current workers would violate their vested rights.
The lawyer said the law is less clear about whether the types of pay used to calculate pensions are a vested right. But the second change sought by the CalSTRS board would apply the bill’s limits on types of “pensionable” pay to new hires only.
State Treasurer Bill Lockyer’s representative on the CalSTRS board, Grant Boyken, voted against both proposed amendments. Board member Carolyn Widener voted against the proposal to limit the redefining of pensionable pay to new hires.
Widener said the proposal risks making the board “look like we are protecting 500,000 people no matter what’s going into their compensation right now. This is also the court of public opinion.”
At an Assembly committee hearing on the anti-spiking bill this month, a CalSTRS lobbyist diplomatically said the board’s position is “support if amended.” A lobbyist for the California Teachers Association said the powerful union supports the CalSTRS proposal and is “opposed unless amended.”
The author of the bill, Simitian, told the committee others are “just as determined that we not use” the pay cap. As issues are raised, he said he tries to respond if it’s a “real issue” and not just a reluctance to change the way things are done.
“When I worked on renewable energy,” Simitian told the committee chairman, “I thought there was no area that could be more complex as a policy area — until I got into public employee 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 https://calpensions.com/ Posted 19 Jul 11