Wednesday, October 5, 2011
As public pensions are increasingly scrutinized, so has the practice of using special pay to boost pensions. Some consider it income that should rightfully be counted toward pensionable pay; others see it as another way to gouge taxpayers. The practice is not universal but is so common among government employees that numerous counties and cities, and now the California legislature, are seeking to ban the practice.
Kevin Crowe, investigative reporter, Investigative Newsource, non-profit journalism center based at SDSU
The county of San Diego paid employees more than $100 million during the past few years for special benefits like car and uniform allowances -- and most of these add-ons can count toward their retirement.
It’s a practice that goes on across California and is increasingly controversial as taxpayers face gargantuan bills in underfunded public employee retirement costs.
Find salary breakdowns, including base pay, overtime and premium compensations, for more than 20,000 San Diego County government employees. Search by name or browse by department or job title.
In San Diego County, more than half the “premium pay” from 2007 through 2010 was for performance bonuses, according to an analysis by the local nonprofit journalism center, Investigative Newsource. Although the bonus program was suspended in 2009, its effects could long be felt when recipients begin collecting their pensions.
The county pays more than 80 categories of special pay. After the bonus program, which cost about $30 million a year, bilingual pay was the most expensive, costing $3.3 million a year.
Forty-four employees, including the county supervisors and top administrators, are eligible to receive car allowances ranging from $7,200 and $12,000 a year. They cost the county about $360,000 annually from 2007 through 2010.
For an employee with 20 years of service making $143,021 a year (a supervisor’s salary in 2010), an additional $12,000 a year auto allowance would bump their pension payout by about 8.5 percent. If they draw it for 20 years, the extra pay would yield an additional $144,000.
Using premium pays, bonuses, unused sick and vacation time payouts and other devices to increase pensions is so common among public employees that some government watchdog groups, a civilian grand jury and most recently the California legislature, have sought to ban or at least curb the practice with little success so far.
Advocates consider supplemental pay to be income that is rightfully counted toward pensionable pay; critics see it as another way to gouge taxpayers.
"The abusive practices engaged in by a few individuals have put retirement benefits at risk for the vast majority of honest, hard-working public servants,” said Senator Juan Vargas, a San Diego representative and member of the Senate Public Employees, Retirement and Social Security Committee. The committee recently championed anti-spiking legislation that failed Sept. 9 after Gov. Jerry Brown indicated he would not sign pension-related legislation unless it was part of comprehensive reform.
It’s virtually impossible to estimate how much pension add-ons cost taxpayers. There are dozens of separate public retirements systems in California and many variables to factor, such as how many people retire in a year, how many years of services they’ve had, what their pensionable earnings are, how much special pay will enhance their pension.
County officials said they have never studied the impact of special pay on long-term pension costs because it’s a relatively small amount in relation to the county’s payroll of just under $1 billion.
Potentially large payments for overtime and accrued sick and vacation time do not count toward retirement.
Special pay items that boost salaries range from “helicopter duty” and “weekend shifts” to “prisoner transportation” and “sewing room supervisor.” There’s a pay bump for being bilingual or having certifications or advanced degrees. Risky duties, such as handling hazardous materials, increase pay.
During 2007 and 2008, performance bonuses constituted the largest portion of special pay.
Officials said the bonus program was a win-win for the county and employees. The county avoided some across-the-board permanent pay increases, while employees received up to 4 percent in bonus pay if they helped their departments come in 6 percent under budget. Still, the program was shelved in 2009 because of budget constraints, the officials said.
Outside of the bonus program, the county paid an average of $13.4 million a year in special pay from 2007 to 2010.
More than 70 of the 80-plus categories of special pay are included in pension calculations. Newsource found that payouts ranged from an average of $2,675 in 2007 to $1,193 in 2010. More than 100 people in 2007 and 2008 made more than $10,000 in special pay, five people earned more than $25,000 and one person earned more than $50,000.
For most county employees, retirement calculations are based on years and type of service and rate of pay in the highest 26 consecutive pay checks, which are issued every two weeks. For others, it’s based on an average of their highest three consecutive years of compensation.
Special pay can make a difference.
For an employee with 25 years of service and a high base salary of $65,000 at retirement, for example, $2,500 in special pay would boost the annual pension pay by about 4 percent, or $1,872 per year. That’s $37,440 over 20 years.
AB 340 - the legislation supported by Vargas - would have prevented county workers from spiking pensions with unused vacation and sick leave, bonuses and other special pay items at the end of their careers in the 20 California counties that run their own pension plans. A separate bill, SB27, which still is pending in the Assembly, would impose similar rules on the state's public employees and teacher pension funds, including many local employees who are covered by the California Public Employees' Retirement System.
Both pieces of legislation were proposed after news reports in Contra Costa County about two fire chiefs whose pensions were inflated with premium pay enraged the public. The Contra Costa Times report also showed that more than two-thirds of employees departing a sanitation district in the past five years spiked their pensions 25 percent to 41 percent.
News organizations around the state have reported similar stories since the courts recently ordered counties to release pension information. The San Diego County Employees Retirement Association had fought to keep pension information secret, but in light of seven separate superior court decisions since 2009 and rulings by three different appeals courts, the association recently released data on the most highly compensated pensioners.
Reacting to public perception, some counties are moving away from add ons and adjusting base salaries upward to avoid the spiking controversy. That can be a complicated process that requires contract negotiations with unions.
County Supervisor Dianne Jacob said county officials are obligated to put special pay into pension calculations because of a 1997 California Supreme Court ruling known as the Ventura decision. The court concluded a number of special payments had been improperly excluded from pension calculations, resulting in retroactive increases for the plaintiffs, Ventura County sheriff’s deputies.
“I question many of the premiums and they should be reevaluated,” she said. “The problem is, many were negotiated with our labor unions before my time on the board and it’s extremely difficult to un-ring the bell.”
Jacob noted that the county needs to offer some types of special pay to attract workers.
“I know how hard it is for the County to recruit quality people willing to put on a hazmat suit, or work as jailhouse nurses or work a graveyard shift in a tough area. I know how hard it is to find crackerjack executives who are creative and committed to public service. We can’t compete with the corporate world for that caliber of talent” without premiums, she said.
Jacob made a distinction between special pay and the much-derided practice called pension spiking.
“Spiking happens when a public employee is given a significant increase in compensation immediately before retirement in a deliberate attempt to increase their pension,” she said. “Paying a premium to a jailhouse nurse willing to work the nightshift is not ‘spiking.’”
Supervisor Pam Slater-Price said she has no problem with special pay.
“Higher pay for special skill sets, such as helicopter pilots, is part of doing business. Premiums are negotiated with labor. For the most part, they were likely negotiated in lieu of other benefits.”
Lani Lutar, president of the San Diego County Taxpayers Association, said eliminating special pay in the city of San Diego, which has a $2.1 billion pension deficit, is one of the cornerstones of a ballot initiative to end guaranteed pensions for most new city hires and give them 401(k)s instead. The ad-ons should be eliminated at the county as well, she contended.
“We don’t think any specialty pay should be part of a pension calculation,” Lutar said. “This has a significant long-term impact on taxpayers. If you look at the salaries that are paid out, they already allow for extremely generous pensions.”
Lutar cited this example in the city: Emergency Medical Technicians get special pay for obtaining a certification that is required for them to do their job. That special pay then counts toward their pension.
“The type of pension spiking maneuvers we have seen is really on a scale of obnoxious to insane,” she said. “The labor unions have been very clever over the years at identifying benefits that are going to be hidden from public view because the liability won’t be experienced for years if not decades.”
Eraina Ortega, a legislative representative with the California State Association of Counties, a group that lobbies for county government interests, said her organization has advocated for the overturning of the Ventura decision because the association favors placing the decision-making power with counties.
Still, there are steps a county can take to miminize the financial impact of premium pay within the confines of the Ventura decision.
For instance, while the county is required to include certain types of pay in a pension calculation, officials said they could negotiate with employees on how much they might be paid for, say, a uniform allowance.
Don Turko, the county’s Human Resources director, said the county continues to analyze what special pay should be on the table during the next set of contract talks with employee unions. “To the extent we can minimize costs subject to Ventura we’ll pursue those,” he said.
Ortega of CSAC said transparency is essential in the discussion of pension benefits.
“As long as the public can see what benefits are being provided,” she said, “the public has a right to look into it and say, ‘Is this the appropriate compensation for our public officials?’ ”
Investigative Newsource is a nonprofit specializing in data-driven reporting. It is based at San Diego State University’s School of Journalism & Media Studies. For more on this topic, tune in to KPBS radio Midday Edition at noon today. For a full list of county employees, their salaries and special pay, go to www.inewsource.org.