By Ed Mendel
Monday, April 28, 2014

When government workers are temporarily promoted shortly before retirement, do they get the same pension increase as a permanent worker in the job — or would that open the door for “spiking,” the intentional tweaking of final pay to boost pensions?

The issue split the CalPERS board this month in a 6-to-4 vote approving anti-spiking regulations for Gov. Brown’s pension reform legislation, which covers most state and local government workers hired since Jan. 1 last year.

While giving new hires lower pensions, the Public Employees Pension Reform Act also limits their ability to spike with a list of items that are not “pensionable compensation,” such as overtime, bonuses and pay for unused sick leave and vacation.

“Temporary upgrade pay” was not on the list. After talks with labor, employers and the Brown administration reached no consensus, the CalPERS staff, reversing its previous position, drafted regulations making temporary upgrade pay pensionable.

The split vote sent the regulations, approved as drafted, out for a 45-day public comment period. The new rules and the comments will come back to the board for final approval or changes triggering another comment period.

“If someone is put into a higher-paying position at the end of their career, not on merit, that seems to present the potential for pension spiking,” said board member Richard Gillihan, a Brown administration official who voted “no” on the new rules.

If employers left positions open for retiring employees, CalPERS could look at the problem case-by-case, replied Danny Brown, a staff member. He said temporary “out-of-class” work can be common, and staff felt extra duties deserve the usual extra benefits.

The reform limits spiking by using the highest three-year average of pay to calculate pensions for new hires, rather than the highest single-year pay used for previous hires not covered by the reform.

“If you were in a temporary upgrade long enough that it impacts your three-year final comp, it’s been more than an ad hoc promotion,” said board member J.J. Jelincic, referring to the reform disallowing “any one-time or ad hoc” pay.

Board member George Diehr disagreed, citing a report issued last month by the nonpartisan Legislative Analyst’s Office, “State Worker Salary, Health Benefit, and Pension Costs,” specifically pages 11 and 12.

Diehr said the report shows that when adjusted for inflation the average state worker’s take-home pay (after pension, health, Social Security and Medicare payments) has been relatively flat over the last 20 years.

But the report said the inflation-adjusted state cost of providing salary and health and retirement benefits for the average employee during the last two decades increased from about $77,000 a year to more than $100,000.

“This is yet another item that would increase it,” Diehr said of making temporary upgrade pay pensionable. “So the notion that this would come at no cost is certainly not true.”

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