California Supreme Court rules against pension spiking
Unionized public employees in California and 12 other states had been successful over the last four decades in finding ways to artificially inflate total pay as their members approached retirement age in order to spike lifetime monthly pension payments.
The 2019 compensation for the average California public sector miscellaneous employee was $99,000 in pay, plus $32,000 in benefits. Police averaged $129,000 and $52,000 in benefits; while firepersons average $162,000 and $52,000 in benefits. That contrasts with the U.S. Bureau of Labor Statistics calculation that the California private sector average compensation was $61,290 in pay and $12,520 benefits.
Government payments flow into public sector pension plans according to average hours worked and overtime authorized. But public sector unions have made access to overtime a right of senior employees. As a result, the highest paid employees can work enormous amounts of overtime in their final years to push up their pension “pay” basis.
Transparent California reported that 80,500 retired California public employees received a pension of $100,000 pension last year, up 24.5 percent from the prior year.
Unionized public employees in California and 12 other states had been successful over the last four decades in finding ways to artificially inflate their total pay as they approach retirement in order to spike the size of lifetime monthly pension payments.
State and local governments make huge pension contributions according to average hours worked and overtime authorized. But public sector unions have made access to overtime a right of senior employees. As a result, the highest paid employees could work enormous amounts of overtime in their final years to push up pension “pay.”
According to Transparent California, there were 80,500 retired California public employees receiving a $100,000 pension last year, up 24.5 percent from the prior year. California’s top annual pension of $416,608 went to Curtis Ishii, the 64-year former top fixed income investor for the California Public Employees’ Retirement System.
Facing a nation-high $42 billion deficit from the ‘Great Recession’ a decade ago, progressive Gov. Jerry Brown rammed a law through the state legislature in 2012 prohibiting pension spiking. But the issue has been tied up in the courts since the $8.8 billion Alameda County Employees' Retirement Association; $9.3 billion Contra Costa Employees' Retirement Association; and Merced County Employees' Retirement Association sued the state based on the state constitution’s ‘Contract Clause’
Referred to as the “California Rule,” public employees argued for 40 years that state constitutions prohibited making laws to circumvent obligation of contracts regarding earned pension benefits, no matter how the employee gammed the system to get it.
With the California Supreme Court unanimously upholding the section of the law prohibiting pension spiking, the pensions for future public employee hires will now be capped at $110,000 for employees who participate in Social Security and $130,000 for fire fighters, police and teachers that do not participate in Social Security.
Although state and local governments will still have to bargain with unions for current employee contribution rates, new hires will be required to pay half of the “normal pension” costs. Miscellaneous employees as the largest category of workers, will to wait until their 67th birthday for maximum retirement benefits, rather than the current age 62 for most workers.
Future police, firefighters and prison officers will have to wait until age 57 to qualify for maximum benefits, versus age 50 for many current safety employees.