Tuesday, February 16, 2016

How to Spike Your Pension

When Marty Robinson was elected Chief Executive of Ventura County, California in 2008 supporters cheered her appointment. A councilwoman from the Ventura County city of Oxnard claimed, “That’s a glass ceiling broken”. At her retirement ceremony in 2011, her colleagues offered tributes that lasted nearly two hours. The Board of Supervisors renamed a stretch of the County Hall of Administration, “The Marty Robinson Trail”. Ms. Robinson’s compensation that final year? She was paid a total of $330,000.  

Startling as this may be for a public servant, this level also forms the basis by which her lifelong pension payments will be calculated. Her highest year compensation of $330,000 entitles Ms. Robinson to lifetime annual retirement benefits of $272,000, an amount it turns out, that is actually higher than her base salary for the year of $228,000.  By adding unused vacation time, overtime, car allowances and other perks, Ms. Robinson was able to significantly raise (or "spike") her final year compensation as the basis for all future pension benefits she will receive in her retirement. While this practice was outlawed by the California Public Employees Retirement System (CalPERS) in 1999, counties like Ventura who do not participate in CalPERS, but rather manage their own internal employee retirement systems are free to allow the practice to continue. In fact, twenty of the state’s fifty-eight counties run pension plans that are outside of this CalPERS mandate, following a 1937 law that granted counties a choice between joining the statewide retirement system and creating their own. These twenty counties, known as 37 Act counties, are not required to follow mandates of CalPERS or other statewide directives.

Assuming Ms. Robinson lives to age 85 and the CPI averages three percent over the next twenty years, Ms. Robinson will receive total retirement benefits from Ventura County of $15,702,608 (or $24,221,167 should she live to age ninety-five).  Now here’s where it gets interesting.  Had she not tried to manipulate the system by spiking her final year income - artificially boosting her salary in the manner described above - her total retirement benefits to age eighty-five would still have totaled $10,849,000, placing her in the top 0.01% of retirees.  

Sadly for us, as taxpayers, Ms. Robinson is not alone. Despite a $761 million unfunded pension liability for Ventura County, 84% of its retired county employees earning more than $100,000 per year pre-retirement saw higher income in retirement than they did as employees on the job. The former Ventura County Sheriff is reportedly receiving $272,000 per year in retirement pay (twenty percent higher than his salary) while the former county Undersheriff is receiving $257,997, a full thirty percent above his base due to spiking.

Following these and other alarming details of the Ventura County retirement system, a measure was placed on the November 2014 ballot called the Sustainable Retirement System Initiative, designed to stop these and other abuses. Among other reforms, the Sustainable Retirement System Initiative would shift new county employees to a 401(k) style defined contribution retirement plan, thereby relieving county taxpayers of future pension liability for these employees. Proponents argued that the measure could save county taxpayers millions. 

A group backed by the Ventura county employee unions quickly sued, however, arguing that if such a measure were to be approved, the county would face great difficulty in recruiting new employees (i.e., if their benefits more closely resembled those of private sector employees). Before taxpayers could have a say one way or the other, on August 4, 2014, Ventura County Superior Court Judge Kent Kellegrew ordered the item be removed from the ballot, thus denying taxpayers an opportunity to vote on the proposal. One last thing in case you are wondering. Yes, County judges are covered by the same Ventura County pension plan.

Much more on the public pension and retirement crisis can be found in my new book: Up In Smoke: How the Retirement Crisis Shattered the American Dream, available on Amazon.com