HUNTINGTON BEACH : Retirement System Asks City to Pay Bill

The state Public Employees Retirement System demanded Friday that the city pay a $918,796 bill to cover the costs of city employees who retired with inflated pensions, often called “spiking.”

The retirement system warned the city that if it did not comply, the city’s contribution rate would increase.

Officials of the retirement system had earlier sought payment from the city, but the City Council voted to not pay the bill. In June, the city sent a letter to PERS informing it that the city would not pay for spiked pensions.

Spiking occurs when an employee gets the city to inflate the worker’s last year’s wages--on which a pension is based--by allowing the employee to forgo vacation days, car allowances and other benefits and take them as wages.

In response to the city’s June letter, PERS officials said the state “cannot relieve the city from payment of its unfunded liability” and that the city “may be billed subsequently.”

The city’s bill from PERS totaled $918,796 to cover a portion of the costs for spiked pensions of 39 retired employees. To partially pay for the bill, PERS said it would take $175,164 from the city’s surplus account. The retirement system demanded payment of the remaining $743,632 by June 30.

Councilman David Sullivan, an opponent of pension spiking and chairman of the council’s subcommittee investigating spiking, said Friday afternoon that he had not seen the letter and could not comment.

Deputy City Administrator Richard Barnard also said that the city has no statement regarding the letter from PERS.

“Our legal counsel is reviewing the content of the letter and is preparing an analysis of it,” Barnard said. He said the council will meet soon with an attorney hired to advise the subcommittee on the spiking issue.

The city rejected the PERS bill because a council majority believes spiking is illegal and that the city is not obligated to pay for pension spiking. The subcommittee that is investigating pension spiking may ask a court to rule whether the practice is legal.