Cities Gird for a Flood of Retirements Fueled by Spiking of Pensions : Civil service: Change in state law is prompting workers to leave before new guidelines take effect June 30.


Douglas Gates will be a busy man come June 30.

As personnel director for the City of Hawthorne, Gates will have at least 28 vacancies to fill or eliminate by then. About 8% of the city's work force will have retired in the last several months of the fiscal year.

"That's about three times what we normally see in one year," Gates said. "It's going to make things very interesting around here."

Hawthorne, as it turns out, is not the only South Bay city bidding farewell to an unusually high number of employees, officials said. In Redondo Beach, 24 plan to retire. In Torrance, up to 92 safety workers eligible for special retirement benefits could leave this year.

A change in state pension law has prompted what one Hawthorne councilwoman calls a stampede of retirements. Workers, many of them police officers and firefighters, are leaving cities in a last-chance rush to inflate their pensions before new guidelines take effect.

The departures could muddy the financial and personnel picture in six local cities for years to come.

The problems stem from the elimination of pension spiking, an often-criticized practice written into the contracts of some public employees.


Spiking agreements typically let workers convert unused sick leave and vacation time into cash during their final year of employment. The extra pay is then counted as a salary increase and used to calculate a higher pension.

That's how Richard McCarroll, a Hawthorne police officer for 28 years, boosted his pension in 1991. McCarroll said his base salary, around $49,000 a year, entitled him to a monthly pension of $2,300. Thanks to spiking, he receives $2,750 a month.

"It was a contract thing, a little icing on the cake," said McCarroll, 53, who now lives in Sedona, Ariz. "It's basically beer and dinner money, or maybe a little more than that."

But for the state Public Employees' Retirement System, the cost of pension spiking was huge. Although no one knows the amount with certainty, officials speculated that the practice could have cost taxpayers billions of dollars if left unchecked.

Local governments contracting with PERS to fund retirements weren't contributing funds for the extra benefits. Neither were the workers. The retirement system absorbed the cost.

In 1992, the retirement system said it would no longer pay for the spiked portion of pensions. It gave government agencies a grace period to remove pension spiking from contracts by the end of June, 1994. And, during the grace period, it began charging cities for the extra cost.

Because of pension spiking during the grace period, 94 agencies statewide owe $29.8 million to the system as of May 1.

Of those 94 agencies, Torrance owes the most--$4.23 million--records show. Redondo Beach ($1.05 million), Hawthorne ($824,548), Gardena ($258,953), El Segundo ($151,538) and Hermosa Beach ($15,935) are the other South Bay cities indebted to the system.


The actual cost to cities, however, is expected to be greater than the figures indicate. That's because current balances reflect only the cost of employees who retired by May 1. The majority plan to do so in June. As more employees leave the cities, the balances will rise.

Redondo Beach, for example, said it expects to owe $2.2 million.

In Torrance, the number is harder to calculate. Officials don't know when or how many of the 92 safety workers eligible to retire with spiked pensions will do so.

Most cities force employees to retire after they convert leave time into cash. But in Torrance, police and fire employees have the option to retire months or years from now, with pensions spiked by cash received by June 30.

City officials said it is unlikely that all 92 will retire this year. And the longer employees wait, the less the city will owe in spiking costs. Promotions and other raises should eventually boost most of the salaries beyond their spiked levels, officials said.

The upshot for Torrance is that its liability could grow by as much as $14.5 million in the coming years--or by very little.

The bills for most cities will start coming due next year, officials said.

Payments to the retirement system will stretch over 10 to 30 years to ease the burden on local agencies. Reserves already paid into the system also will soften the blow in some cities.

But state and local officials said sizable amounts will come from city coffers.

Redondo Beach said it expects to pay $160,000 a year more to the retirement system through the year 2011. Hawthorne officials estimated the city will cough up $400,000 next year alone.

"Any time you take a $400,000 hit," Hawthorne Finance Director Tim Brown said, "I have to find $400,000 in services to cut."

Despite the expected rise in labor costs, some local officials said the departures will help to balance budgets.

The retirements offer an opportunity "to eliminate positions without laying people off," said Hawthorne's Gates. "It really gives us much more flexibility at a time when we need it."

But Gates also worried that too many veteran employees are leaving at one time.

"The city is losing a lot of years of experience those people bring to the job," he said.

And, officials in the South Bay said, the retirements are particularly troublesome because most are in police and fire departments. The departures come at a time when many cities are trying to beef up their forces.

Consider Torrance, where 27 safety personnel and five other workers have retired with spiked pensions since late 1992.

"A year ago, we put around a million dollars in the budget to hire nine police officers," Mayor Dee Hardison said. "But they're retiring faster than we can hire them at this point." As a result, Torrance and other cities are likely to fill some of the open jobs. That would wipe out at least part of the potential savings from the retirements.

While officials grapple with the effects on city finances and staffing, some council members privately say the retirements raise ethical questions. Indeed, pension spiking has drawn criticism throughout California.

A 1992 audit of pension practices in eight Southland cities prompted State Controller Gray Davis to label pension spiking an abuse of the public trust.

"Public service is a privilege," Davis said at the time. "It's not a license to pig out."

But retirees have long maintained that they deserve a comfortable retirement after years of hard work.

"I think most of those retiring with these benefits are doing it because they earned" the benefits, said Robert Klein, who worked a dozen years as a teacher in Hawthorne and 13 years as the director of parks and recreation.

Klein, 70, said he had originally planned to retire in 1995 but left in March to boost his pension.

Retirement system officials said the latest round of pension boosting is substantially different from some high-profile cases, in which top officials got bigger paychecks in retirement than at work.

In one instance, former Manhattan Beach City Manager David J. Thompson received a yearly pension that was $50,000 more than his annual base salary of $89,000. The City Council later slashed Thompson's pension, but he sued and received a $199,500 settlement last month.

The average benefit for a retired employee is about 35% to 45% of the worker's salary. The latest round of spiking boosts that amount by 7% to 9%, a retirement system spokesman said.

Some South Bay cities, however, have avoided the extra expense entirely because they do not have contracts that promote pension spiking.

"We've avoided that stuff like the plague," said Gary Irwin, assistant city manager in Lomita.

Other South Bay cities currently without pension-spiking agreements are Avalon, Carson, Inglewood, Lawndale, Manhattan Beach, Palos Verdes Estates, Rancho Palos Verdes, Rolling Hills and Rolling Hills Estates.

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