California School Administrators Still Pension Spiking, Despite Pension Reforms

SAN FRANCISCO (KPIX 5) — California’s schools may be cash strapped, but many school administrators are still retiring on easy street.

That’s because pension reform can’t stop many from gaming the system.

It’s networking time for some public school administrators, many of whom will one day enjoy some of the most generous retirement benefits in the state.

But when it comes to the practice of boosting pay at the end of a career to get a fatter pension, a practice known as pension spiking, it’s not something they seem eager to talk about.

Scott Thompson says he knows why. A former analyst for CalSTRS, the California State Teacher Retirement system, Thompson says he routinely caught school administrators gaming it.

“You are looking for a dramatic increase in the salary, near the end of their career,” he said.

Teachers can’t spike, because most belong to unions with collective bargaining agreements.

But administrators can.

That’s because unlike private sector employees whose social security benefits are based on a salary average, pensions for school executives in California who have worked more than 25 years are based on their single highest year.

“When people are paying in at this rate then they jump up here, it’s a dramatically underfunded pension,” said Thompson.

Thompson says he first became aware of the problem when the case of John Bayless crossed his desk in 2008.

He noticed the former superintendent of the Cabrillo Unified School District in Half Moon Bay received a $110,000 raise in his last year.

“When I first saw it I thought well someone clearly typed an extra zero,” said Thompson.

But it was no typo.

Bayless’ compensation jumped from $157,000 to $267,000 in his final year. The “spike” bumped what would have been a $7,000 dollar per month pension up to $13,000 per month.

Scott says he flagged the case and many others.

But no one at CalSTRS seemed to care.

Instead, the agency fired him in 2011 for adjusting a pension without authorization. Thompson believes it was retaliation for blowing the whistle.

“It’s public funds, the public has a right to know,” he said.

Soon after Thompson lost his job, lawmakers in Sacramento took up the cause and eventually passed a landmark pension reform bill that became a new law.

“It’s a question of fairness to the taxpayer,” said Santa Clara Supervisor Joe Simitian, who pushed for pension reform to prevent spiking when he was state senator.

“I thought it would be a relatively easy and straightforward issue to tackle, it turned out to be anything but,” Simitian said.

Simitian says the new law is an improvement: Padding salaries with car and cellphone allowances for instance is no longer allowed. And new employees’ pensions will now be based on an average of their highest three years pay.

The new law also caps pensions for new employees and cuts back on special bonuses for things like car and cell phone allowances.

But it’s not retroactive.

So for the next few decades school executives will still be able to spike their pensions based on their single highest salary year.

“Every time you artificially inflate that last year salary you take on a pension obligation for what could be decades to come,” said Simitian.

And it all adds up. CalSTRS’ pension obligations are underfunded by $72.7 billion dollars.

We wanted to find out if spiking is still going on but CalSTRS refused to release information, claiming in response to our public records request that it “doesn’t maintain payroll information for members,” something Thompson says is simply not true.

“Having worked inside the pension fund for six years I knew exactly which data there was, and it is primarily the salary data,” he said.

He provided us with a spreadsheet from December 2013 that CalSTRS sent to the California Foundation for Fiscal Responsibility that does show salary data. We found dozens of spikes were still happening even after pension reform, including one as high as 91 percent.

“The final year really does lend itself to abuse,” said Simitian.

Thompson is awaiting permission from a state appellate court to pursue a lawsuit for wrongful termination.

Soon after Thompson left CalSTRS, the agency reduced the inflated pension of Cabrillo Unified School District’s former superintendent. He now gets $11,300 per month, instead of $13,000 per month.

The State Controller blasted CalSTRS in 2012 for lack of proper oversight on pension spiking. Since then the agency has hired more auditors and says it performed 51 audits in 2016, up from 40 in 2012.

More from Betty Yu
Comments

One Comment

  1. If CalSTRS is actually serious about addressing pension spiking, it should signal this by re-hiring its employee who blew the whistle on pension-spiking.

  2. Ronald Stein says:

    It’s unfortunate that future generations, unable to vote today, will bear the costs of many enacted pension programs, entitlements and boondoggle projects, requiring them to pay higher taxes and work later into their lives to pay for these promises. It’s the inmates running the pension Asylum that have negotiated extraordinary pension and retirement benefits today, without considering of the unfair financial burden placed on future generations.

    The international business world is intelligent enough to know that DEFINED BENEFITS, neither capped nor precisely quantifiable in advance, financial disasters to any business, thus all businesses focus on the known, i.e., defined CONTRIBUTIONS alone.

    Stealing from the young who have no votes, but silently shoulder the costs and bear the burden of unfunded promises of these programs to enrich the old seems to describe the Governments expansion of entitlement benefits and other government services, along with the taxes young people will have to pay to support them, mostly to subsidize older Americans.

    The inmates know that debt for our future generations buys votes. Over the decades, the proven “concept’ practiced by voters is to defer as much financial responsibilities as possible from our current financial responsibilities to future generations, that have no votes on the subject. Simply stated, if we cannot afford it today, pass it off to the future generations to minimize any impact on our current lifestyles.

    Virtually all elected officials are heavily financed by unions which are focused on entitlements for their current members. The unions, government, and other bureaucrats have been very successful in manipulating the system to enrich themselves. Thus, no changes can be expected in the foreseeable future for elected officials to ever abandon their source of votes.

    Even before those young folks can vote our Golden State schools are on track to force substantial budgetary cutbacks on core education spending, as public schools around California are bracing for a crisis driven by skyrocketing worker pension costs that are expected to force districts to divert billions of dollars.

    The GASB published accounting and financial reporting standards now provides accountability and transparency for county, city, and state budgets to show how those unfunded pension liabilities and expenses will be funded in the decades ahead, i.e., either tax increases, and/or a reduction in current services to meet those funding requirements. Maybe if the uninformed citizens can “see” the full impact of the pension tsunami that’s coming, they’ll at least be financially informed and can accept the rip off, or revolt.

    1. Yes, pension spiking imposes unfunded costs on taxpayers, including future taxpayers not even able to vote yet. Surely a solution exists to this particular problem, even if it involves more than just passing a law to close the loophole prospectively. Perhaps pension credit could be denied for pay raises over a certain percentage within 5 years of retirement? Possibly school districts that award huge pay increases in the final years of employment could be penalized, especially if the resulting salary is disproportionate to the pay of similarly situated administrators in nearby districts? Possibly CalSTRS could simply request and receive agreement from administrators not covered by the new laws, to be bound by them nevertheless? Most school administrators probably disapprove of those who take advantage of the system, and would readily agree to close this loophole. Perhaps administrators who feel otherwise should not be retained.

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