They’re the little extras tacked on to “pensionable pay” – from mainstays like chunks of unused leave time to such oddities as the “motorcycle bonus” and “confined space pay.”
Add them up, and some public workers in Orange County are boosting their “final average salaries” by some 20 percent, according to an analysis by Transparent California, the data arm of the conservative California Policy Center.
That number is important, as it’s used to determine how much retirees will earn as pension for the rest of their lives.
A Register review of data from the Orange County Employees Retirement System found dozens of new retirees whose first-year pension checks either eclipsed their “final average salaries,” or came quite close. Eighty-one of the 688 people who retired in 2014 had pensions that were at least 90 percent of their final average salaries.
As a group, the new retirees averaged 63 percent of final average salary, the Register found.
“The problem is not that we found some law-breaking here, it’s that this doesn’t break any law at all,” said Robert Fellner, research director for Transparent California. “It’s a systemwide practice, and there’s nothing wrong with an employee working a system that says, ‘Would you like some free money?’
“I’m a free-market guy,” Fellner said. “People respond to incentives. The system itself is just really, incredibly, overgenerous, on the backs of taxpayers who don’t have this type of opportunity.”
‘Pension spiking’
Fellner calls the phenomenon “pension-spiking,” a term that draws the ire of OCERS officials.
“Spiking is an unwarranted pay raise in the final 36 months of a member’s OCERS-covered career,” said spokesman Robert Kinsler by email. “OCERS audits all member records on a regular basis to ensure there is no spiking.”
Union officials say Fellner works for an organization that’s unabashed in its desire to revamp the public pension system, and that such efforts threaten America’s middle class. Some workers are pumping up to 20 percent of pay into retirement accounts to help make these pensions possible, they note.
Retirement formulas do indeed reward longevity, which can make a 30-year-worker’s pension rival his working pay, officials said. Pension benefits are not allowed to exceed 100 percent of final average salary, at least initially.
Once automatic annual cost-of-living adjustments kick in, however, pensions can exceed what was earned while working.
Consider former Sheriff Mike Carona, who was convicted in 2009 of witness tampering and sentenced to 5 1/2 years in federal prison. He is serving the last six months of his sentence at home in Orange.
Carona was making $207,979 a year when he stepped down in 2008 after 32 years of service. Last year, his pension was $231,922.
“OCERS is very concerned about any allegations of pension spiking,” said David H. Lantzer, deputy chief counsel for OCERS, by email. “These adjustments are statutorily required and may increase retirement benefits to more than 100 percent of a member’s final average salary. However, cost of living increases are added to the base retirement, which should never be more than 100 percent of final average salary.”
Generous pension hikes granted during the financial-market boom days of the late 1990s and early 2000s have brought governments to their knees, from Detroit to Chicago and Stockton to San Bernardino.
Aggravated by “pension holidays” (when retirement funds appeared so super-funded that officials quit putting money into them) and by the worst recession in decades (which vaporized money that was supposed to grow to help fulfill those generous promises), governments now find themselves forced to pump more money into pensions to make up for lost ground.
By and large, they have no choice. Public pension promises are considered legally etched in stone. If investments don’t earn enough to pay what’s been promised, taxpayers must make up the difference.
OCERS had an unfunded liability of $4.9 billion as of December, according to financial statements. It was 69.6 percent funded – meaning it had that much of what’s currently pledged to current and future retirees.
Not Chicago
Experts like to see a funded status of at least 80 percent, though some say even that’s not enough.
Still, Orange County is no Chicago, the latest municipal damsel in distress. That city’s four pension systems are only about 50 percent funded.
The Transparent California review focused on “full-career retirees” – those with 30 or more years of service – who stepped down in 2013 and 2014. They collected pensions worth 96 percent of final salary, the data showed.
• A division chief with the Orange County Fire Authority had a final average salary of $209,262 after 32 years of service. His pension was $203,423 last year.
• A maintenance specialist at the Orange County Sanitation District made $126,117 in 2012, then retired after 35 years of service. He received $115,232 in pension last year.
• An assistant airport director for the county had final average salary of $201,115 after 32 years of service, retiring with a pension of $177,094.
Final figures were significantly higher than base pay, and often boosted by “other pay” – usually cash-outs of unused leave time that had been banked for years.
The airport director had $125,760 of “other pay” in her final year. The county executive manager had $112,590.
“My understanding of the term ‘pension spiking’ is it refers to a practice that inflates one’s pensionable compensation by using additional forms of pay, or selling back unused sick/vacation leave, to increase pensionable compensation beyond their standard salary amount,” Fellner said in an exchange with OCERS.
“Based on this definition, clearly the process that OCERS uses to calculate pensionable compensation would qualify.”
OCERS countered that its methods are in line with California Supreme Court rulings. They’ve been in use since 1998, and have been a model for other retirement systems statewide.
“The subject of what pay item goes into the actual monthly allowance that a member receives can be confusing,” said OCERS spokesman Kinsler. “Keep in mind that a member’s base salary is not the same as their final compensation, which can legitimately include other pay items aside from their daily wage.”
OCERS looks to each member’s labor for what can legally be included in final average salary. Every situation is different, but the most common addition is annual leave hours, he said.
It’s “blatantly misleading” to focus on retirees with 30 years of service – about 16 percent of the total – when most retire with far less, said Tom Dominguez, president of the Association of Orange County Deputy Sheriffs. The average safety member retires after 24.25 years of service, he said.
In 2013, the governor’s pension reform law aimed to scale back the sweeteners by limiting what kinds of extra pay can be included in final calculations for new hires. It will trim liabilities eventually, but not until those hired after Jan. 1, 2013, start retiring, years from now.
The sprinkler premium
When it comes to adding extras, OCERS’ agencies are hardly alone. It runs towards the middle of the pack – a bit more generous than some pension systems in California, and a bit more stingy than others, Fellner said.
Last year, the world’s largest public pension system – the California Public Employees’ Retirement System – added 99 kinds of special pay that can sweeten pensions for those hired after the governor’s reforms, without figuring out how much more that will cost over the long haul.
CalPERS’ pensionable pay now includes:
• The “sprinkler and backflow premium” – compensation to groundskeepers routinely assigned to repair large sprinkler head controllers, valves and backflow prevention devices.
• The “street lamp replacement premium” – compensation to maintenance workers routinely assigned to replace street lamps from an aerial bucket.
• The “tree crew premium” – compensation to maintenance workers routinely assigned to remove, prune or otherwise care for trees.
• The “dictation/shorthand/typing premium” for clerical workers.
Gov. Jerry Brown didn’t have a problem with most of the list, but he blasted the inclusion of temporary pay resulting from short-term promotions as pensionable pay.
“This disregards the rule that pensions will be based on normal monthly pay and not on short term, ad hoc pay increases,” Brown wrote in a letter urging CalPERS to reject that item. His request was ignored.
Final average salaries were often quite a bit higher than base pay, and often exceeded the maximum listed in a job’s salary range, said Transparent California’s Fellner.
An Orange County “Deputy Sheriff II” has a published salary range of $62,774 to $87,693. Yet one deputy sheriff retired in 2013 with a final average salary of $100,904, allowing him a pension of $94,000.
“It’s interesting how misleading the salary range is,” Fellner said.
Agencies whose retirees earned more than six figures argued that it’s the price of doing business.
The Orange County Sanitation District, where the average 30-plus-year pension exceeded $103,000, is the third-largest wastewater treatment agency west of the Mississippi River. It protects public health and the environment, which requires a workforce of engineers, scientists, chemists and other skilled professionals and mechanics, said spokeswoman Jennifer Cabral. As such, average salaries tend to be higher.
“We understand the need to contain costs,” she said, pointing out that the agency lowered benefits for new hires years before it was mandatory.
“We also understand the importance to ensure we have the most qualified employees protecting the public’s health and the natural environment 24 hours a day, 7 days a week, 365 days a year.”
Contact the writer: tsforza@ocregister.com
http://www.ocregister.com/articles/pension-663707-pay-final.html