Pension Inflation Controls Needed : * Officials’ Expensive Loophole Should Be Closed

It’s sometimes called “pension spiking,” but state Controller Gray Davis has another name for it: “legal larceny.” The practice allows public employees approaching retirement to inflate their salaries with sick leave, vacation days, automobile allowances and other perks. That enlarges their pensions.

A recent audit by the state controller’s office of eight California cities, including Anaheim and Huntington Beach, indicates that spiking occurs in many public agencies and that it has cost taxpayers millions of dollars.

The audit was conducted on selected Southern California cities in response to allegations of pension fraud in a Sacramento County fire protection district. The results indicated that irregularities were much more widespread than previously believed. While none involved fraud or criminal misconduct, it is now clear that the system needs to be tightened; officials cannot fairly be accused of wrongdoing if loopholes allow them to report certain benefits as income for pension purposes.

Davis cited as one of the worst examples that of former Anaheim City Manager William O. Talley, whose salary was increased from $97,390 to $159,109 before he resigned in 1987. That boosted Talley’s retirement to $7,558 a month. Talley, currently Dana Point’s city manager, says Anaheim’s calculation of his last year’s salary was approved by the Public Employees Retirement System (PERS), which administers retirement programs for about 1,200 agencies statewide. He has accused Davis of grandstanding.

The state controller’s audit also found that the salary of Anaheim’s former fire chief, Bob D. Simpson, was inflated before his retirement. In Huntington Beach, Davis said, inflated pensions were computed for former Deputy City Atty. William S. Amsbary as well as 15 of 16 other city retirees. A local citizens’ group, Huntington Beach Tomorrow, has called for an investigation.

The practice of inflating retirements gives a bad name to public employees, even though most do not engage in it. The state controller’s office found in its audit that, in the six cities where spiking was found, top-ranking administrators primarily benefited. But the other two audited cities were found to have routinely shortchanged lower-level employees--a deficiency that also may occur in other agencies and that also needs correcting.

PERS needs better ways of tracking these agencies. It would help if Gov. Pete Wilson authorized the hiring of all six new PERS auditors approved in legislation he signed. So far, only half have been hired. These positions are funded by PERS, not the state’s general fund, so the current state hiring freeze should not apply.

But new ways to tighten up procedures, as well as new civil and criminal penalties, are needed. Assemblyman Dave Elder (D-San Pedro), chairman of the Assembly Public Employees, Retirement and Social Security Committee, and state Sen. Cecil N. Green (D-Norwalk), chairman of the Senate Committee on Public Employment and Retirement, recently introduced legislation on behalf of PERS that should provide the basis for spirited debate this year. Included are suggestions for curbing pension inflation, including extending statutory limitations on fraud from three to 10 years.

Elder also wants to make it a felony for any public official to knowingly inflate his or her retirement claim. Davis also proposes civil penalties, including full restitution of pension overpayments.

Whatever form new legislation takes, it is clear that PERS must be given--without delay--strong new tools to prevent pension spiking.