County legacy: court-ordered pension ‘spiking’

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.

Committee co-chairs: Assemblyman Warren Furutani and Sen. Gloria Negrete McLeod

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.”

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Posted 16 Apr 12

6 Responses to “County legacy: court-ordered pension ‘spiking’”

  1. Frank Keegan Says:

    There is no pension crisis? Such extreme denial and self-delusion could be diagnosed as mental illness. What happens when pension checks start bouncing? The hole many states and communities are in is beyond the ability of massive tax hikes and service cuts to fill. Politicians cannot legislate arithmetic. Judges cannot overrule it. As far as taxpayers are concerned, politicians sent them tax bills and taxpayers paid, fulfilling citizens’ part of the contract in full.

  2. Tough Love Says:

    Quoting …”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.” and “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.”

    The above absudity is why nary a tear (nor a dime of funds) will be forthecoming from Private Sector taxpayers when these Plans go belly-up.

    Greed HAS consequences.

  3. Tough Love Says:

    Quoteing …”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.”

    Earth to Mark Klein …. we need reform because we are running out of money. We can’t save anything if you get an INCREASED benefit offsetting a pension reform element. We know you are a union mouthpiece, but are you also stupid or just arrogant?

  4. gery katona Says:

    California is one of the leading states in the nation for the title of “worst managed” and this is a great example. How did systems ever get approved that allow people to retire early and receive more than they did when they were working? That is so far out of line to be criminal and makes this state the laughing stock of the country. And unions aren’t going to agree to any give-backs, given

    that everyone ONLY thinks of themselves and that there is nothing in it for them. And on the other side of the table is the party that receives largese from the unions, so the system is clearly broken. Nothing will happen. We can only hope the voters in this state agree with Sen. Joe Simitian, D-Palo Alto who states the the article that there must meaningful reform approved before a tax increase can be considered. The voters need to wake up, it is the only recourse.

  5. Robert Mitchell Says:

    Pension envy is widely used by public employees to disparage their critics. Well, private employers must limit pensions to a 3 year average, capped each year. So we are envious of the rotten deals made by public employers to get special treatment from Congress that exempts them from the 3 year rule.

  6. Foofey Says:

    To ‘Tough Love’ – That rule is now changed, and not all State employees are over compensated at retirement. A small group of members have made all of us look like we’re living it up in retirement, but nothing could be farther from the truth for most of us retirees. I retired after 35 years service and I still must work. I lost my home under Schwarzeneggar, and at 60 yrs old am tryin to start over – with nothing.
    The rank and file (R&F) employees of the State must be vested before they can draw any retirement benefits. The vesting takes a R&F employees at minimum 5 years. The EXCEPTION to this is Safety classes (Police, Fire, and others affiliated) as well as elected officials who have their own plan – no vesting for them. This is where reform needs to happen.
    A new hired firefighter is vested automatically. These firefighters are young people usually right out of high school with little training or experience – but eligible for retirement benefits as soon as they are hired. In addition, during the Furloughs, and Personal Leave Programs – programs designed to save the State money – firefighters and other Safety classes were given a ‘differential’ to offset the salary income they lost in those programs. So – the higher paid State emloyees got even more, while the R&F employees took a major pay cut.
    I object to this because as a R&F employee with many years service, I saw many new firefighters come in to service and make alot more money than I was making – right from their hire date. The State pays for training, and then pays the Safety members more for going to the training! In addition, the State pays for uniforms – and now calls it income to be counted toward the Safety members retirement final compensation. No other classes get this benefit. A number of ‘differentials’ exists to compensate Safety members. None of these show on salary tables – only base pay is reflected on information to the public. It would be an enlightening report to see salary (as reflected on published salary tables), versus the actual payout to the Safety member.
    Safety members – when queried – state “We save lives”. That is blanket justifiction for all benefits demanded by their Unions. Isn’t that what we pay them for? If we are paying this differential, that differential, and the other differential because they ‘save lives’ – what are we paying the salary for? Isn’t dangerous working conditions inherent in the job? Isn’t that what the salary compensates for? Isn’t that what we’re training them for? Why do we pay them more and more differentials for doing their job? ‘Recruitment and Retention’ pay is another differential paid for this job – when no recruitment or retention problem exists for these classes. Eligble candidates are everywhere. Differentials for actually going to and working at a fire exists. Planned overtime – mandated by the Union contract – is paid to individuals for 24 hour shifts. Some of the Safety members receiving planned overtime are actualy working an 8-5 shift and going home at night. The contract mandates the schedules that they are paid for, but the job they are doing isn’t necessarily staying at the firehouse going to fires. The justification for this is that no firefighter would do the 8-5 shift duties unless they were paid planned overtime – which usually amounts to more than their salary.
    In addition, at the end of Fire Season when they are layed off, firefighters – though they are hired for temporary employment – can draw unemployment until the next fire season 9 months away!
    Another note – in the towns and cites that have firehouses open 24 hours per day – why can’t we have 3 shifts like hospitals do? AM, Swing, and PM? This would eliminate the need for seriously expensive planned overtime – as well as produce more jobs. What is the justification for 24 hour shifts? My thinking is that if Nurses can do 8 hour shifts and make it work – can’t fire personnel? Exceptions could be made for active fire status, but for everyday operations – 24 hour shifts are excessively expensive and unnecessary. We pay now for firefighters to sleep and eat on the State dime when if we had (3) 8 hours shifts we would eliminate that expense.
    The Safety Unions are so strong and so demanding that there is nothing left for the less aggressive Unions at the bargaining table.
    Are any of our elected officials looking at this or is the Union holding hands with the powers that make those decisions?
    This is just an example of another smoke screen to fool the public, and compensate the Safety classes who already are the best paid, protected State employees. The rest of us watch in envy – and poverty.
    Frankly, I am sick and tired of silently watching this kind of crap continue..

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