HUNTINGTON BEACH : Pension ‘Spiking’ Believed Thwarted

The city could be off the hook of paying millions of dollars to city employees who had hoped to retire with inflated pensions, officials announced Wednesday.

Mayor Linda Moulton Patterson said the state Public Employees’ Retirement System (PERS) has notified the city it will not accept conversions of benefits for any period other than the 12 months just before retirement.

The city had estimated a tab of $10 million to $13 million for 153 city employees who converted such benefits as unused vacation days and car allowances into salary in order to increase their final compensation, which determines the amount of their pensions. The practice is known as pension “spiking.”

“It looks to me that this policy of PERS could save the city from a liability of up to $10 million for those who have not yet retired,” Councilman David Sullivan said, “because from the time they spike their salaries, they would have to retire within 12 months.”

Moulton Patterson also said the city may not be liable for most of that amount because a majority of the employees have not retired and most, according to the retirement system’s policy, would not be eligible to pad their pensions. Moreover, most are not expected to retire for at least several years, she said.

Moulton Patterson said the city last week received a letter from PERS that spelled out its policy.

Councilman Ralph Bauer said City Council actions in recent months that questioned the practice of pension spiking “forced PERS to take a better accounting of how their rules are applied. . . . We did a service to the people of California.”

The employees had requested the increased retirement pay before the practice became illegal in the state on July 1. Under past contracts with employees, conversion of the benefits to compensation was allowed.

Moulton Patterson said that because pension spiking was a questionable practice, “this council majority has been opposed to that practice and has tried to rid that from contracts.”

The City Council prohibited the conversions as of Jan. 31, 1994, and five of the city’s employee unions have agreed to stop the practice, officials said. The city and the firefighters’ association have reached an apparent impasse in negotiations for a new contract.

Deputy City Administrator Robert Franz said he did not know how many of the 153 employees who had hoped to increase their pensions have retired to date, or how many plan to retire soon and would be eligible to convert their benefits under the retirement system’s policy.

Moulton Patterson said about a dozen employees are expected to retire this year, fewer than the yearly average of 20 to 30 retirements.

Meanwhile, the city has yet to resolve the issue of paying a nearly $919,000 bill from PERS to cover pension-spiking costs of employees who have already retired.

“We are still discussing that matter with PERS,” Sullivan said.