Spiking the pension punch

By Scott Mooneyham | Nov 21, 2013

RALEIGH -- As long as I have been covering state government, critics of the state pension system have been raising alarms about pension "spiking."

Spiking typically involves the politically connected using those connections to get new government jobs or promotions that involve big pay increases as they near retirement.

Because the state and local government retirement systems base monthly retirement benefits on the highest consecutive four years of earnings, a big pay hike at the end of someone's career can mean a big jump in retirement benefits.

The News & Observer of Raleigh has recently been illustrating how some other pay practices can do the same.

The newspaper has been reporting on five-figure bonuses paid to some local government employees and how several community college presidents saw benefits not part of the retirement calculation converted to salary as they neared retirement.

In the case of the community college presidents, many of them with salaries of over $200,000 a year, the change had the effect of raising that salary by roughly $100,000. The increases boosted the annual retirement benefits of some by $19,000 or more.

It occurred only after state legislators, in 2010, decided to lift a cap on community college presidents' salaries.

Despite that decision, spiking and the financial soundness of the $85 billion has been on the radar of state officials for while.

Former state Rep. Dale Folwell, a Winston-Salem Republican who now heads the state Division of Employment Security, got legislation passed that extended the pension fund vesting period, a move that improved the fund's soundness and probably scuttled some spiking schemes.

State Treasurer Janet Cowell, who has ultimate responsibility over the pension fund, commissioned a study looking at the issue. It was completed last month.

To stop this kind of thing, Buck Consultants recommended putting percentage caps on any yearly salary increases considered for pension fund purposes. It's an idea worth considering.

But the firm also called for something called a contribution-based benefit cap, basing pension payments on the contributions that went into the system on that employee's behalf.

There is a problem with these kinds of caps: They can penalize rank-and-file state workers who had nothing to do with spiking.

Any state employee who, for example, made from $30,000 to $35,000 for eight or 10 years, and then earned a new college degree or acquired new skills and made a jump to a job paying $50,000, would see reduced benefits.

The Buck Consultants report lists, but did not recommend, other options that may better target the abuse.

They include creating an overall annual pension payment cap and lengthening the years considered when calculating the benefits. Some states, for example, cap annual pension payments at $150,000; others use a eight-year period to determine them.

No formula may be infallible, though, not when some public officials become guardians of their buddies' golden years rather than guardians of public dollars.

 

Comments (1)
Posted by: Scott Lilly | Nov 22, 2013 08:13

The government started pension plans to be competitive to the private sector employers a long time ago when it was common to have pension plans.  Today, it is very rare to see a pension plan in a private sector job.  So why are we still paying pension plans for government jobs?  This is the kind of nonsense that made Detroit bankrupt.



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