WHEN IT comes to curbing abusive pension spiking, state legislators are still falling short. While claiming they want to fix the system, they're actually perpetuating it.
A year ago, I reported on the case of Craig Bowen, a retired San Ramon Valley fire chief who earned about $222,500 during his final year and ended up with a starting annual pension of $284,000.
If Bowen had collected a pension based on just his final year's base salary, his annual retirement benefit would have been $194,400. But Bowen was able to boost his pension with credit for management pay, standby pay, auto allowance and payments he received during that last year for unused administrative leave, unused sick leave and unused vacation. That's how he spiked his pension by 46 percent.
Bowen was an extreme case, but not a unique one. I've reported similar cases involving the former Moraga-Orinda fire chief, the former Contra Costa County administrator, three other top officials of the San Ramon Valley fire department and the general manager of the Central Contra Costa Sanitary District.
The abuses are not limited to top managers. As I showed with the sanitary district, more than two-thirds of departing employees in the past five years spiked their pensions 25 percent to 41 percent. The gaming of the system was widespread in the district's workforce, including a machinist, senior plant operator, accountant, maintenance crew leader, painter and secretary high on the list.
As phone calls and e-mails I receive indicate, outrage is growing. Some of our elected leaders in Sacramento feel the heat. In response, they give lip service to fixing the system. But their so-called reform bill, AB1987 — which the Assembly passed on June 3 by a vote of 75-0 and sent to the Senate — is a convoluted piece of legislation that will keep attorneys busy deciphering it and lock in most of the abusive tactics. Rather than close the loopholes, the bill would strengthen them.
To understand the problem, keep in mind that the cases I reported affect workers in the 17 agencies that are members of the Contra Costa County Employees' Retirement Association.
The association is one of 20 similar county-level retirement systems in California that operate under a different set of state laws than the much larger and better-known California Public Employees' Retirement System.
It's the law for these county-level systems that's at issue. That law was thrown into chaos in 1997, when the state Supreme Court, in a case involving Ventura County, greatly expanded the list of pay items that must be included when those pension systems calculate workers' retirement benefits. The salary used to calculate a pension, the court ruled, must include not only base pay but also items such as bilingual premium pay, uniform maintenance allowance, educational incentive pay, pay in lieu of annual leave accrual, holiday pay, motorcycle bonus for cops, field training officer bonus and longevity incentive.
The ruling left unanswered questions about what other income might be included in pension calculations. Employees sued many of the county-level retirement systems, including Contra Costa, to include items that were not addressed by the Ventura case. Many of the retirement systems settled.
In Contra Costa's settlement, for example, the pension board in 1999 greatly fattened the pension calculations by agreeing to include final pay for items such as unused vacation and other leave for workers who retired in 1997 or earlier. Since then, the pension board has granted that benefit to all retirees.
It turned out to be a huge giveaway. In 2003, a state appeals court ruled that those final pay items received at retirement should not be included. But the Contra Costa pension board kept counting it — a practice that went unquestioned publicly until I raised the issue last year. Finally this year, the pension board ended the benefit, but only for new hires. Consequently, all current employees will be able to take advantage of the windfall, improperly driving up pension costs for decades to come.
In Contra Costa, the Ventura decision and the settlement agreement paved the way for most of the costly pension spiking. If legislators want to stop spiking, they must undo the Ventura ruling and the settlement agreements signed by county-level pension boards around the state. Thus far, they have been unwilling to do so. Indeed, AB1987 does just the opposite. It says that the pension systems must adopt rules consistent with the court decision and the settlement agreements. The lawmakers are making the problem worse.
To be sure, the bill is not as bad as it used to be. In response to a column I wrote May 16, lawmakers removed parts of the bill that would have increased retirement benefits even more and shut off public access to records about the payments. And the bill contains some good provisions, including one that would disallow the counting of pay increases that were granted with the principal purpose of spiking an employee's pension.
The bill also has well-intentioned wording aimed at curbing the use of unused vacation and other unused leave in pension calculations. The problem is it still allows employees, as Bowen did, to cash in unused vacation during their final year of employment and count the proceeds as income for pension purposes. That's a practice that should simply not be permitted. Moreover, the curbs on counting unused vacation and other unused leave are superseded by the language memorializing the court rulings and subsequent settlement agreements.
The bill contains another gaping loophole: It allows each retirement board to adopt its own rules as to what other pay should count toward retirement calculations.
In talking with legislators and staffers in Sacramento, I've heard lots of excuses.
They claim these issues should be resolved through collective bargaining. That's what union leaders would like. But it's a bogus argument. These rules allowing spiking weren't created through collective bargaining between government agencies and union workers.
Those government agencies are separate from the pension boards and lack the authority to change the rules. The rules are a product of legal battles that cannot be solved by collective bargaining. They are rules that stem from court interpretations of state law. It's up to state lawmakers to fix that law.
The legislators also claim they cannot overturn the court decision. That's simply wrong. The decision was an interpretation of a state statute. It's well within the power of the Legislature and the governor to fix that statute. As legally complicated as these issues are, this is not a problem of the law, it's a problem of political will.
It's unclear that Democratic legislators — including the East Bay's Sen. Mark DeSaulnier and Assembly members Joan Buchanan and Alberto Torrico, who are all co-authors of the bill — are willing to stand up to the public employee labor unions that helped put them in office. DeSaulnier and Buchanan say they want to fix the problem. We'll see.
Meanwhile, Republican members of the Assembly also voted for the bill. I'm told they grabbed at the small, incremental improvements. It seems to me they are settling for crumbs — and in doing so might undermine hopes for real pension spiking reform.
Daniel Borenstein is a staff columnist and editorial writer. Reach him at 925-943-8248 or email@example.com.