By Marc Lifsher
September 9, 2014

Taxpayers and local governments are on the hook to pay nearly $800 million stemming from “legal” pension spiking over the next two decades, the state controller said Tuesday.

The price tag came as Controller John Chiang issued a new audit of the California Public Employees’ Retirement System.

The audit of 11 state and local government agencies found no illegal pension spiking but concluded that the country’s largest public retirement fund makes itself vulnerable to the practice by not aggressively reviewing its 3,100 member agencies’ payroll records.

Pension spiking is the practice of hiking a public employee’s pay, through a promotion or salary hike, just before the employee retires. As a result, the monthly pension checks received, sometimes for decades, can be significantly increased. Pension benefits are calculated using a mathematical formula based on the pay received by a retiree during the three years of his or her highest compensation.

Chiang said he especially was concerned by the practice at 97 local agencies of fattening a worker’s final year’s pay when the collective bargaining agreement calls for the agency to pay both the employer’s and the employee’s share of the total pension contribution.

The benefit, which is no longer available to people hired after Jan. 1, 2013, increased CalPERS member compensation by $39.1 million a year. But it has the potential to cost the state and local agencies and taxpayers an estimated $796 million in additional pension costs over the next two decades, Chiang warned.

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