HUNTINGTON BEACH : Salary ‘Spiking’ Cost Could Hit $13 Million

The cost of salary “spiking” by retiring city employees could reach about $13 million, according to a report submitted to the City Council this week.

The total cost to the city had previously been estimated at $2.7 million.

Deputy City Administrator Bob Franz estimated that 144 current employees who may retire in the next five years could cost the city an additional $10.5 million in pension benefits.

“It’s like turning over rocks with slime on them. It’s always worse,” Councilman David Sullivan said of the new figures.

Spiking is the practice of inflating an employee’s salary to increase retirement benefits, which are based on pay. Employees simply fill out a form designating their final year’s salary. They can artificially inflate that figure by including vacation pay, auto allowances, and other perquisites as part of their salaries.

Current employees may still spike their pay, even though state law will prohibit the practice starting July 1 of this year, and the new estimates are based on the potential debt from these employees.

Sullivan likened salary spiking to a “fiscal time bomb that keeps ticking.”

While it has not been illegal, spiking is considered an abuse by state officials because it doesn’t give the retirement system enough time to save the money required to pay an inflated pension.

In November and February, the city was billed by the California Public Employees Retirement System for $918,413 to cover the cost of spiking by 10 employees.

A recent PERS report stated that 34 Huntington Beach employees, including those 10, spiked their pay by an average of $79,000 the year before retirement. The city has not received a bill for all of those employees because PERS covered the cost in the form of higher retirement rates charged to the city starting last July, Franz said.

The city’s total annual budget is $195 million.

The council formed a committee Monday to investigate whether the city can prevent current employees from spiking their salaries.

Council members also wanted a legal opinion on whether the city is really liable for the spiked portions of the retirement benefits or if PERS should pay for it.

Although city officials will not defend the most egregious cases of spiking, some view it as a legitimate way to reward long time city employees and managers, who generally make less than their counterparts in the private sector.