If California legislators have any smarts at all, they should act on a handful of pending measures to reform abuses in the state’s public pension funds. If they don’t, and they continue kicking the pension reform can down the road, they run the risk that a ballot initiative will do the job for them and the results may do more harm than good.
Voters have a right to be concerned about continual news reports of unfunded pension liabilities to the tune of billions of dollars. The unfunded liabilities are not sustainable and add to the state’s projected deficits and debts.
In the legislative dance marathon called passing a budget in California, Gov. Jerry Brown proposed a package of pension reforms that were rejected by Republican lawmakers when Brown tied them to GOP support for a continuation of tax increases.
Now that the budget dance is over, it’s time for lawmakers of both parties to get serious and enact reforms ending some of the worst abuses in the state’s under-funded pension funds.
Legislators have been given a clear road map to follow by the state’s highly-respected oversight panel called the Little Hoover Commission. Earlier this year, the commission released a report documenting egregious abuses and practices that cost taxpayers millions in unearned pensions.
Take the case of a 50-year-old fire chief in Orinda who retired with an annual salary of $185,000. His annual pension was determined to be $241,000, however, and he was immediately rehired as a consultant for $176,000 by his former employer, while still receiving his pension.
The Little Hoover Commission recommended a uniform definition of compensation to compute pensions that is based on base pay only. Other compensation, such as overtime pay, would count toward a new 401(K) type plan similar to what most private businesses offer. The commission also recommended caps on the salary used to determine guaranteed benefits and stricter rules against pension “spiking,” the practice of granting large salary increases in an employee’s last years to increase lifetime pension amounts.
The practice of pension “spiking” was the subject of a Sacramento Bee investigative report recently on a state employee fired for blowing the whistle on abuses in the state’s second largest pension fund, the California State Teachers Retirement System. The employee, a pension program analyst, brought cases of spiking to the attention of his bosses, and eventually, to the attention of CalSTRS board members. He was fired for his efforts, though he had earlier been recognized for outstanding service, including investigating one case of adult children hiding the death of their pensioner mother in order to continue receiving her pension checks for more than a year after she died.
It’s worth noting that the “spiking” abuses the CalSTRS employee uncovered were not those of teachers, but of highly-paid school administrators.
In one case, a San Mateo area school superintendent’s salary jumped a whopping 70 percent in his last year, increasing his annual salary from $155,000 to $265,000, with his pension determined by his last year’s pay. In another case, a Los Angeles area charter school principal’s salary grew from $120,000 to $250,000 in her last three years of employment, ensuring the guaranteed lifetime pension amount will be larger than her annual earned salary before the “spiking.”
After firing the whistle-blowing employee, the CalSTRS board studied these two cases for more than two years, finally determining that the charter school principal’s three-year salary increases were “reasonable” and the superintendent’s 70 percent salary increase is still under review.
In the meantime, while the CalSTRS board circles the wagons and protects its highest-paid top echelons of employees, its latest actuarial report reported a funding gap of $56 billion as of June 2010, $15.5 billion higher than the previous year.
The CalSTRS problems are so severe, the Little Hoover Commission warned that “absent a bailout by the Legislature, the prospect of insolvency is very real.”
If the governing boards of public employee pension funds won’t tackle the abuses being uncovered, the Legislature must. Ending pension abuse is the right thing to do, now.