Faced with rapidly escalating pension costs, Gov. Jerry Brown and state legislators adopted a law to reduce retirement benefits for new employees of state and local government agencies.
It isn’t a perfect solution, but it will free up money for road repairs, education, public safety and other services — if it’s allowed to work.
Yet less than two years after pension reform took effect, the California Public Employees Retirement System is poised to undermine a central provision of the law.
A staff proposal that would restore one of the worst abuses of the system — spiking — is on the agenda today for the CalPERS board of directors. Despite opposition from many of the cities that would be stuck with the bill, a CalPERS committee endorsed the proposal on Tuesday.
It would be an insult to California taxpayers if the full board goes along with the plan.
Pensions are calculated based on years of service and salary. A common public employee plan in California offers 2.5 percent of salary per year of service. A retiree who works 30 years would receive a pension equal to 75 percent of salary.
Years of service are relatively fixed, but the definition of salary has proven quite flexible, and that’s where pension spiking occurs. CalPERS counts a variety of things beyond salary, even payments toward retirement benefits in some instances. The result is that some employees receive more in retirement than they got for working.
Some notorious examples of spiking come from Sonoma County’s retirement system, which is separate from CalPERS but uses similar methods. When Rod Dole stepped down mid-term as Sonoma County’s auditor-controller, his salary was $208,000. Through the magic of spiking, his pension was set at $254,600 a year. Sheriff Bill Cogbill also was paid $208,000 yet retired with a $239,000 pension.
In Santa Rosa, when firefighters agreed to begin paying a share of their retirement costs, the contract identified their payments as reimbursements to the city, while the city continued to pay the employee share to CalPERS. Why? The city’s payments were treated as salary, meaning they were used in calculating pension benefits for the firefighters.
CalPERS says the proposal in front of the board is simply an interpretation of the 2012 pension reform law. From our perspective, it’s less an interpretation than a flight of fancy.