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March 11, 2010
For More Information, Contact:
Melissa Figueroa (916) 651-4011
SACRAMENTO – State Senator Joe Simitian (D-Palo Alto) has introduced Senate Bill 1425 which aims to curtail the problem of pension spiking in California. Pension spiking is a term used when an employee boosts their final salary before retirement by cashing out on vacation time or administrative leave, among other things, in order to get a higher payout.
Senate Bill 1425 requires that an individual’s pension be evaluated by a series of steps in order to deter employees from padding retirement with one time bonuses, end of career “promotions” and accrued vacation time.
By inflating their end-of-career incomes, employees are able to artificially inflate their pensions. “For the most part,” said Simitian, “the process is entirely legal. Simply put, the rules now in place encourage employees to game the system.”
Simitian’s concern is that, “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.
“Equally bad,” said Simitian, “is that high-profile abuses undermine the public’s confidence in the entire system. The average state pension through CalPERS, for example, is $25,212 annually. The six-figure pensions people hear about are less than 1% of the system.”
“Most of the folks I talk to,” notes 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,” said Simitian.
A 2007 study by San Francisco’s non-profit Pacific Research Institute indicates that pension spiking costs California taxpayers roughly $100 million each year. That estimate did not include the costs of hiring and training replacements for retirees, which pushes the cost of pension spiking even higher.
“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. This measure seeks to stop abusive pension spiking now, while ensuring that California workers earn a full day’s pay for a full day’s work.”
Simitian’s Senate Bill 1425 is also crafted to resolve a revolving door of “double dippers”, employees who retire with substantial pensions, and are then right back at work drawing a substantial paycheck, often at the same agency. “I think the public is willing to pay for a decent retirement for someone with years of service. I don’t think the public wants to pay the equivalent of two full time paychecks to someone working in the public sector,” said Simitian.
Simitian said he understands the occasional need of public agencies to bring back a talented employee, to fill a short term vacancy or provide specific expertise. But, he says, “the system is being gamed” in a way that encourages good people to cash out early and then come back as double dippers.
For more information on SB 1425, visit http://www.senatorsimitian.com/legislation.