The California Teachers Association and California State Teachers’ Retirement System are opposing a bill that would limit pension “spiking,” the practice of boosting salaries right before retirement to increase pension payouts.
SB 27, authored by Sen. Joe Simitian, D-Palo Alto, applies to the California Public Employees’ Retirement System and CalSTRS. The law would trigger an audit if a public employee’s salary increases 25 percent or more during the final five years on the job. It also would put restrictions on non-salary compensation that increases pension payments, such as life insurance, car allowances, housing, unused vacation and sick pay.
Public employees would be limited in how quickly they could return to work for the state, the University of California, a school employer or contracting agency after retiring. In an effort to address what’s been dubbed “double dipping,” the bill would require agencies to wait 180 days before hiring or contracting a retired employee.
Simitian said in a press release that current laws "encourage employees to game the system.” He argues that employers have been inflating retirement packages by granting big raises at the end of an employee’s career. Pension plans primarily are based on the average pay of an employee's final three years or, if employed 25 years or more, on his or her highest-paying year.
The Sacramento Bee recently reported:
- The number of retirees in the CalSTRS system making $100,000 or more increased sevenfold since 2005.
- More than half of CalSTRS pensioners receiving $100,000 or more are former school administrators.
- Large pay bumps in the final years of these public employees’ careers are a primary reason for the trend.
While the Association of California School Administrators opposes the bill, CalSTRS and the teachers association have offered support if it's amended.
CalSTRS officials have proposed applying the bill only to new members. They also want the auditing process replaced with a $147,000 cap on the amount of salary that can be used to calculate pension plans. Anything earned over that amount could be applied to a supplemental program similar to a 401(k) retirement plan.
CalSTRS, while denouncing spiking as a threat to the solvency of its fund, criticized audits as time-consuming and said they're often “perceived as subjective.” Spokesman Patrick Hill said a cap on the wages that could be used to calculate an employee's pension would be more efficient.
“If you had a bright-line test, it would be much simpler to administer. It’s about accurately making a determination,” he said, adding that audits usually are a complex and lengthy process. “Keep in mind that our CalSTRS system (already) has defense against spiking built in.”
CalSTRS' ability to prevent spiking recently has come under scrutiny. Scott Thompson, a former program analyst for the retirement system, told the Sacramento Bee that he was fired for blowing the whistle on large pay increases. State officials said they fired him for lowering an employee's pension without proper authorization.
Simitian has yet to release a statement on whether CalSTRS' amendments are being considered.
The bill has passed the state Senate and is scheduled for a vote in the Assembly Appropriations Committee when lawmakers return from break on Aug. 17. Last year, a similar bill passed the Legislature but was vetoed by then-Gov. Arnold Schwarzenegger.