To understand the significance of litigation over a new state law designed to curb pension spiking, consider the $50,000 annual difference it would have made for Central Contra Costa Sanitary District's former general manager.

Jim Kelly retired March 31, 2012, with a starting pension of $262,366 a year, slightly more than his base pay. He timed his departure so that the next day he received the retirement system's annual April 1 cost-of-living adjustment, boosting his rate to $270,240. This year, he received another adjustment, to $275,645.

Kelly also took advantage of spiking allowed by the Contra Costa Employees' Retirement Association and, to a lesser extent, pension systems in Alameda, Merced and Marin counties. Because of the Contra Costa rules, Kelly's current pension is $50,000, or 22 percent, more.

The Contra Costa association has known for years that its permissive practices violate past appellate court decisions. The new state law, signed by Gov. Jerry Brown last year, requires county-level pension systems to abide by those rulings.

Employees in all four counties sued to block the law's Jan. 1 implementation. They argue that they were promised they could spike their pensions. But the Contra Costa system's attorney has said that they are not entitled to boosts that violate the past appellate court rulings.

The four current lawsuits have been consolidated before Judge David Flinn in Contra Costa Superior Court. While the case is pending, the spiking continues as more employees retire. And the effects of the past boosts are magnified each year as retirees' inflated pensions are proportionately adjusted for cost of living.


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While the dollar-value of Kelly's spiking is bigger because of his large salary, the practice is ubiquitous among sanitary district employees. Of 30 who retired in 2012 and 2013, 28 took advantage of provisions barred under the new state law.

By counting supplementary pay and unused leave, retiring workers increased their pensions an average 28 percent, according to my analysis of district data. The past rulings and new law would have disallowed most of that, reducing the increase to an average 11 percent.

To understand this, keep in mind that pensions are determined by years on the job, age at retirement and top salary. In Kelly's case, he was entitled to 2.5255 percent of his top salary for every year of employment.

Kelly boosted two parts of that equation. He increased his 28 years of work by adding 1.4 years of unused sick leave. He increased the salary used in the equation by counting longevity pay and the value of his "cafeteria plan," a pretax compensation for additional benefits such as life insurance, gym membership or a health care reimbursement account. Those pension hikes would be permitted under the new state law.

For Kelly, the problematic spike came from the cash value of unused leave time. Under the sanitary district's generous policies for all employees, he could sell back unused vacation time each calendar year. By retiring midyear, he was able to count for his pension calculation sale of vacation in two calendar years. He also received credit for cash payments at retirement for more unused vacation time and unused sick leave.

Most of those payments for leave time would not have been permitted under past appellate court rulings or the new state law. That's mainly what the current court fight is about.

There's a lot of money at stake.

Daniel Borenstein is a staff columnist and editorial writer. Contact him at 925-943-8248 or dborenstein@bayareanewsgroup.com. Follow him at Twitter.com/BorensteinDan.