(September 10) Public employees’ continuing use of the tactic of pension spiking, a practice that has now been made inapplicable to their colleagues hired since January 1, 2013, will cost California’s taxpayers and local governments close to $800 million over the next twenty years, according to California Controller John Chiang.
Chiang said he came to that conclusion based on his office’s most recently completed audit of the California Public Employees’ Retirement System, which provides benefits to 1.7 million retired state and local government workers and their spouses out of what is currently a $301.5-billion investment portfolio funded by taxpayers.
The audit that focused on eleven state and local government agencies turned up no direct evidence of illegal pension enhancements, or “spiking,” but found that the California Public Employees’ Retirement System has not conscientiously monitored the payroll records of its 3,100 constituent agencies.
Pension spiking is the process whereby employees inflate their compensation, either by promotion or the reception of long accumulated benefits in the years or even final year preceding their retirement in order to receive larger pensions than they otherwise would be entitled to. The California Public Employees Retirement System calculates its members’ pensions based upon the compensation they received during the three years of highest compensation.
Public pension spiking in California was outlawed in 1938, but that law went largely unenforced. In 2012, the state legislature prohibited its practice by any government employees in California hired on or after January 1, 2013.
Chiang highlighted his concern with regard to 97 local agencies which he said routinely increased a worker’s pay during his or her final year of employment when the collective bargaining agreements in place in those jurisdictions call for the agency to pay both the employer’s and the employee’s share of the total pension contribution.
This is projected to cost the state and local agencies and taxpayers roughly $796 million in additional pension costs over the next two decades, Chiang said. .
In its response to Chang’s audit and accompanying remarks, the California Public Employees’ Retirement System said it has no discretion to prevent such legal spiking when the local agency has complied with the law. It said that the subject of pension spiking fell “outside the stated scope of the audit.”
The California Public Employees’ Retirement System lacks sufficient audit capacity, said Chiang, who stated, “On the current audit schedule a local government that contracts with the California Public Employees Retirement System, for example, would only face an audit once in every 66 years.”
In recent years there has been increasing concern that the cost of funding the retirement benefits of public employees is consuming an ever greater share of the revenue available to both local and state government to the point that the traditional function of local governments, i.e., the provision of services at all levels, are being neglected.
In many jurisdictions, the cost of pension payments exceeds that of current payroll and in some jurisdictions, the cost of pensions exceeds the cost of all current operations