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FOR IMMEDIATE RELEASE                  
June 1, 2010

For More Information, Contact:
Phil Yost (650) 688-6384

PENSION REFORM BILL TO CURB “PENSION SPIKING” CLEARS STATE SENATE

SACRAMENTO – State Senator Joe Simitian (D-Palo Alto) announced today that his Senate Bill 1425, which aims to curtail the problem of pension spiking in California, was approved by the State Senate by a vote of 34-0. The bill now moves to the Assembly for consideration.

Pension spiking is the practice of boosting an employee’s final salary before retirement by cashing out on vacation time or administrative leave, among other methods.

Because pensions are often based on final-year compensation, inflating end-of-career incomes artificially boosts pensions throughout retirement.  “For the most part,” said Simitian, “the process is entirely legal.  Simply put, the rules now in place encourage employees to game the system.”

A 2007 study by San Francisco’s non-profit Pacific Research Institute indicates that pension spiking costs California taxpayers roughly $100 million each year.

“Prior pension legislation was never intended to authorize the pension spiking we are seeing,” said the bill’s joint author, State Senator Lou Correa (D-Orange County). “It’s an abusive practice that robs Californians of vital services and precious dollars.”

SB 1425 requires that an individual’s pension be based on a set of criteria that prevent employees from padding final salaries with one time bonuses, end-of-career promotions, and accrued vacation time.  The bill specifically affects employees covered by the CalPERS and CalSTERS retirement programs.

“Pension spiking does a disservice to the public, who ultimately foots the bill; and it does a disservice to other public employees who rely on the resources and solvency of the system for a secure retirement,” said Simitian.

High-profile abuses also undermine the public’s confidence in the entire system. Fewer than 1% of CalPERS retirees receive a six-figure pension; the system’s average pension is $25,212 a year. 

“Most of the folks I talk to,” noted Simitian, “don’t begrudge employees a reasonable pension to provide some security in their later years.  But they are understandably angry when they hear of these off-the-charts payouts – even as our state and our residents are struggling to make ends meet.”

SB 1425 also addresses the issue of revolving door “double dippers” – employees who retire with substantial pensions, and then resume full-time employment, often at the same agency, in the same role, immediately after their “retirement.”

Simitian said he understands the occasional need of a public agency to bring back a talented employee to fill a short term vacancy or provide specific expertise.  But, he said, the current system encourages employees to cash out early and become immediate and continuing double dippers, hurting the public and other retirees in the process.

For more information on SB 1425, visit http://www.senatorsimitian.com/legislation

 

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