A gaping loophole in the pension reform bill lawmakers are ramming through the Legislature would actually enable more spiking of retirement pay in 20 California counties, including Alameda, Contra Costa and San Mateo.
Because of a missing word, the bill would greatly expand the number of workers who could boost their compensation by counting unused vacation time in pension calculations. Perhaps it's a drafting error, perhaps it's deliberate. But it must be fixed.
The plan, unveiled by Gov. Jerry Brown on Tuesday, faces an end-of-session vote Friday. Legislative leaders plan to push forward on this complex legislation even though members of the Senate and Assembly have had minimal time to review
The bill would reduce benefit levels for new employees. It would require many new employees and current state workers to pay more toward their pensions. And the governor and legislative leaders have said it would curtail pension spiking.
But while adjusting one aspect of the pension calculation to reduce spiking for new employees, the bill creates a new way to increase the payout for many current and future workers.
The legislation affects numerous public employee retirement systems in California. But the loophole does not alter the rules for the largest, the California Public Employees' Retirement System. Rather it affects counties that have their own pension systems, operating under different laws and court
Among them, Contra Costa has most generously interpreted the rulings, allowing employees to count compensation for unused vacation and sick leave in ways that would not be permitted under CalPERS.
As a result, one fire chief converted a $185,000 annual salary into a $241,000 yearly pension, another traded a $221,000 salary for a $284,000 starting retirement, and two-thirds of the retirees from a local sanitary district boosted their retirement by 25 to 41 percent.
The governor says he's trying to curtail some of those sorts of abuses. It's not the first attempt at fixing these problems. In each of the past two years, legislators have introduced bills to do so.
An early version of the 2010 legislation, drafted with heavy influence from labor, would have made it worse. It was eventually vetoed by then-Gov. Arnold Schwarzenegger. The 2011 attempt was scuttled to give Brown and the Legislature time to work out this week's more comprehensive package.
Last year's legislation would have significantly reduced the ability to count payments for unused vacation and sick leave as income when computing pension payments. The new reform contains almost the same language, except that a key word has been deleted.
Ironically, the word appears in the legislative counsel's digest of the pending legislation, but not in the controlling statutory language. It appears that someone made a last-minute deletion, and it's not clear who. It's a change with possibly huge financial implications.
Here's the background: As an attorney who represents several of the county systems explained in a 2009 memo interpreting court rulings, the final compensation amount used for calculating pensions may only include certain unused leave time.
The worker must have "earned" that time in the final year on the job. And it must have been "payable" during that year, meaning the worker must have had the ability to annually sell back unused time. The sale of unused time is a benefit often available to management workers.
That "earned and payable" restriction was contained in last year's bill, and it is included in the legislative counsel's digest of the current law. But the word "payable" was dropped in the statutory language.
As a result, all vacation time earned in that final year could be deemed income for purposes of pension calculations. It would be a major expansion of past court rulings that could allow workers in all 20 counties to boost their pensions. And those who can already boost their pensions with unused leave time could do so by a greater amount.
In 2010, labor leaders tried to slip in similarly beneficial language. I'd like to believe this time it's a drafting error. I have no reason to believe the governor's office was trying to pull a fast one.
Lawmakers are now on notice. If they let this stand, we'll know their true intentions.