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June 2, 2011
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SIMITIAN BILL TO CURB PUBLIC EMPLOYEE “PENSION SPIKING”
PASSES SENATE
SACRAMENTO – Legislation to curb “pension spiking” in the state’s two largest pension systems has been passed by the State Senate. Senate Bill 27, by State Senator Joe Simitian (D-Palo Alto), addresses pension spiking, the practice of boosting an employee’s final salary shortly before retirement. Simitian’s legislation applies to the California Public Employees’ Retirement System and the California State Teachers’ Retirement System.
Because most pensions are 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.”
Senate Bill 27 requires that an individual’s pension be based on criteria that prevent employees from padding final salaries with one time bonuses, end-of-career promotions, and accrued vacation time.
The bill requires a retirement system to compare employees’ final salaries to those in their peer group to determine whether they have been artificially inflated. Employers and employees can be penalized for abuses.
A 2007 study by San Francisco’s non-profit Pacific Research Institute found that pension spiking costs California taxpayers roughly $100 million each year.
“Pension spiking does a disservice to the public, which 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.”
Senate Bill 27 bill 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.
Senate Bill 27 is a reintroduction of Senate Bill 1425, passed in 2010 by the Legislature but vetoed by then Governor Schwarzenegger due to concerns with a different bill to which SB 1425 was linked.
For more information on SB 27, visit http://www.senatorsimitian.com/legislation.