PETER NOWICKI, the chief of the Moraga Orinda Fire District, knows how to play the retirement system. That's why he was able to convert a $185,000 annual salary into a $241,000 yearly pension.
The losers are taxpayers and employees of the fire district who are left to help finance the outrageous payments. They should insist that elected officials put a stop to similar deals. And other public agencies, including Contra Costa County, should take note. Pension spiking is widespread and should be ended.
To be sure, the case of Nowicki, a 26-year fire department veteran, is extreme. Pension experts who looked at the numbers in his case were amazed. Residents of Orinda and Moraga should be appalled.
How did he do it? Primarily by taking maximum advantage of rules that enabled him to sell back unused vacation and holidays. As a result, he increased his starting annual pension payment 46 percent, from $165,000 a year to the $241,000 yearly total.
Nowicki's only 50 years old. Assuming he lives to 80, those moves alone will add $2.3 million in today's dollars to his pension.
Ironically, after taking retirement Nowicki turned around and went back to work for the district on a five-month contract at an annual rate of $176,000, which he collects on top of his pension payments. Moreover, it's Nowicki who is in charge of overseeing the district's finances.
By his own admission, the district needs to trim back its pension program if it hopes to maintain services. "There are changes that need to be made to the retirement system," he told me, "and we are actively pursuing different options and working with labor to see what kind of changes we can make."
Lots of luck convincing the rank and file to recognize the financial realities while you're personally sucking money out of the system at a staggering rate. Indeed, Nowicki's retirement payments are a perfect example of what's wrong with public pension systems.
The chief, like most police and firefighters in the state for the past decade, has been granted a pension that allows him to retire as early as age 50 and collect 3 percent of his final salary for every year of service. One of the key tricks of the system is boosting that final salary. Here's how Nowicki did that.
For starters, the fire district's generous vacation policy provides up to 10 weeks off per year for employees with more than 30 years' experience. In Nowicki's case, he was earning 8.4 weeks a year when he retired. Not surprisingly, he had a hard time getting his job done and taking all that vacation.
Next, management employees in the district can sell back some of their unused vacation each calendar year. And, if they sell it back during their final 12 months of employment, they can count it as income for purposes of calculating their pensions. Notice that if the final 12 months of employment straddle two calendar years, the employee can sell back vacation twice and count all the income toward the pension calculation. That's exactly what Nowicki did. He sold vacation in 2008 and again in January 2009, just weeks before his retirement.
But, even after selling back vacation time, he still had more left. So when he retired the district paid him for that time as well as for unused personal holidays. And, under the district's policies, those payments were also counted as income when computing his pension payments.
The combined effect of the vacation sell back and the further cash out of unused vacation and personal days added about $76,000 a year to Nowicki's pension — for the rest of his life. And, yes, the pension payments increase with inflation.
So what can be done to stop such abuses in the future? Lots, if elected officials can muster the political backbone to make needed changes and employees, especially younger ones, realize they're getting shafted when their older colleagues spike their pensions on the way out the door.
Public agencies should cap vacation accrual at reasonable levels. Just like in the private sector, if the employees don't take vacation they shouldn't accrue more. Unused vacation can become a huge financial liability that becomes exponential when used as part of pension calculations.
Next, elected officials should eliminate vacation sell-back programs for public employees while they're still working. The state Supreme Court required many public agencies to count the income from those sell-backs toward pension calculations. But the court hasn't required the public agencies to provide such sell-back programs. So stop offering them and then you don't have to count them later. (Those public agencies that insist on preserving sell-back programs should certainly at least prohibit "straddling." Employees should not be allowed to sell back more than once in a 12-month period, even if that period overlaps two calendar years.)
Finally, public agencies should stop counting payments for unused vacation and personal days upon termination toward retirement calculations. The state Court of Appeal has been clear that termination payments need not count toward pension calculations. Public agencies should stop giving away that money.
Any changes will be too late to affect Nowicki's pension. He's set for life. Too bad he didn't push for change before his retirement.
Borenstein is a staff columnist and editorial writer. Reach him at 925-943-8248 or firstname.lastname@example.org.