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Just imagine, you’re already being paid a healthy $165,000 a year, but your retirement is looming and your pension will amount to only $110,000.
But you work under a public employee contract that allows you to count bonuses and other such income as salary, and you cash in $270,000 during your final year of work, bringing your pay to $435,000 for the year.
That, then, is used as the basis for your pension, which surges from $110,000, to $166,000, higher than your salary.
It’s just one of the documented cases that have been uncovered as part of a lawsuit in Phoenix, Ariz., over public employee pension spiking.
A commentary in the Arizona Republic by Laurie Roberts explained how it works.
Phoenix employees “are given astonishing amounts of leave time – an entry-level Phoenix worker gets 40.5 days off a year – and when they don’t use it all, they can get paid for a portion of it when they depart. That cashout, along with any deferred compensation, is then counted as part of the salary upon which their pension is calculated.”
Jonathan Riches, an attorney with the Goldwater Institute who is working on a lawsuit involving Phoenix officials and a local police union, said, “The public pension crisis in this country runs far deeper than just matters of payments and fund solvency.”
He said the “goodwill of American taxpayers to public employees is being squeezed and abused in every imaginable way, especially through illegal pension spiking.”
That’s because that pension, raised artificially from $110,000 a year to $166,000 a year, stays at the higher level.
The institute explains that the practice of spiking pensions with sick leave, vacation time, vehicle allowances, bonuses and other benefits is illegal in many states, “yet it continues to occur on a regular basis.”
In Phoenix, where pension spiking is sought by police and firefighters, the illegal practice has allowed a handful of workers to retire as millionaires, while others have increased their retirement benefits by hundreds of thousands of dollars, the report said.
The cost to taxpayers has boosted the public-safety retirement tab in Phoenix from $7.2 million in 2003 to nearly $130 million in 2014.
Goldwater’s report cited other cases:
- A former Phoenix assistant fire chief walked away with $795,093 in cash, and an annual pension of $130,406 after cashing in vacation time for $14,528, deferred compensation benefits for $43,152 and sick leave worth $110,877 in 2006.
- In Contra Costa County, Calif., a sanitary district general manager spiked his pension by 22 percent, adding an additional $50,000 a year to payouts when he cashed in his sick leave upon retirement. He even counted his “cafeteria plan” into his pension equation. He also retired mid-year so he could include cash payments for unused vacation time in two different years. He also timed his retirement to end one day before the system boosted his pension with an automatic cost-of-living adjustment. He now earns $270,240 a year in pension pay.
- An Allegheny County, Pa., report found a jail employee inflated his income in his last two years with overtime pay from $56,000 a year to $140,000, entitling him to a $92,000 pension, almost double his all-time high salary.
- In Orinda, Calif., a former fire chief retired in 2009 with a salary of $185,000 is earning a $241,000 pension. The same district went on to rehire him as a consultant for $176,000.
The Roberts commentary noted that the rules governing the Public Safety Personnel Retirement System say compensation, for calculating retirement, excludes “unused sick leave, payment in lieu of vacation, payment for unused compensatory time or payment for any fringe benefits.”
“Yet Phoenix offers ‘monthly pay in lieu of sick or vacation leave accrual’ in the final years before retirement – something the city claims was legally negotiated with the police and firefighter unions,” she wrote. “How you can negotiate away a state law is beyond me.”
Riches said taxpayers “simply cannot sustain this abusive and illegal practice.”
“We must put an end to pension spiking now, before it puts an end to responsible government,” he said.
Byron Schlomach, in a report on the institute website, said: “Keep in mind that all four of the state’s public employee pension systems are in financial trouble and taxpayers are paying more into the system to keep them afloat. Pension contributions have increased six times faster than the state GDP. We are paying more taxes and giving up services to fund lucrative retirements.”