California pension reform effort loses support

Legislation intended to curb pension spiking has become so watered down that it would now do little to prevent California public employees from boosting their end-of-career paychecks, critics say, prompting reform advocates and bill sponsor state Controller John Chiang to withdraw support.

Assembly Bill 1987 had been touted as an end to the pension boosting that occurs when public employees add unused vacation, sick time and other benefits to their final year’s compensation in order to drive up pensions.

But as debate over public pensions flares in the wake of reports of inflated salaries and pensions in scandal-plagued Bell, reform advocates say that union-backed amendments to the bill have neutered its beneficial effects.

“It allows unions to negotiate what items of pay will be included in final compensation,” said Marcia Fritz of the California Foundation for Fiscal Responsibility. “We should be taking away the candy, not adding more.”

Pensions are set with a formula that takes into account age, years of service and final year’s pay. Police and firefighters, for instance, earn 3% of pay for every year worked. So an officer with a 25-year career would be entitled to 75% of his or her pay for life.

But many municipalities allow retirees to tack extra pay categories on to their final-year salary, pushing their pensions higher, and abuses have cropped up throughout the state.

In Contra Costa County, for instance, a retired fire chief earning $223,000 a year was able to draw a $284,000 pension by tacking leave benefits on to his final year’s pay.

Assemblywoman Fiona Ma (D- San Francisco), the bill’s author, said the legislation targets highly paid employees who are not part of a bargaining unit. Most spiking abuses have occurred in top management, not among rank-and-file workers, she said.

After conferring with unions and other stakeholders, Ma agreed to amendments that allow unions to negotiate whether such things as education incentives, uniform allowances and shift differentials can be used to come up with a final pay figure, she said. Those items have been upheld as part of final compensation in court and attempting to change that interpretation could invite costly litigation for cities and counties, Ma contends.

“Right now, there are no laws regulating nonrepresented employees at all,” she said.

It’s not just pension reformers calling for changes in the legislation. The California State Assn. of Counties, a local government lobbying group, has withdrawn support along with Chiang, the state controller.

Chiang spokesman Jacob Roper said the controller, who is running for reelection in November, would seek changes that ensure the legislation clamps down on all pension spiking practices.

“He’s working with Ma right now to achieve that goal,” Roper said.

An official in Gov. Arnold Schwarzenegger’s office said the governor would not sign the amended legislation. As written, it “fails to truly address the problem of pension spiking,” said spokeswoman Andrea McCarthy.

Schwarzenegger is calling for major reforms to address $500 billion in unfunded pension debt in California, including lower benefits for new employees and increased contributions for employees.

His administration has negotiated contracts with six state unions that, if ratified, will adopt elements of reform. Ma’s legislation takes aim at the 30 or so retirement systems — including Los Angeles, San Diego and Ventura counties — that are not a part of pension fund giant CalPERS.

A companion bill, SB 1425, implements anti-spiking provisions for members of CalPERS and CalSTRS, the public teachers’ retirement plan.

When it was introduced in February, AB 1987 banned the practice of adding unused sick time, accumulated vacation days and other pay categories to the final year’s salary to boost pensions.

The Assembly bill also contained provisions to prevent a final-year boost in salary and to stop public employees from “double-dipping” by mandating that they could not return to a public agency until retired for at least six months.

In its current form, the prohibition on final-year salary spike and the six-month wait is still in place. But employees are permitted to add a year’s leave to their final-pay calculation and union members also can add pay items that have been approved in court decisions.

Terry Brennand, a spokesman for the Service Employees International Union, one of the state’s largest bargaining units, said that if cities and counties want to ban so-called “special compensation” such as shift differentials, bilingual pay and uniform allowances, they have to consult with workers.

“This is the agreement they came to,” Brennand said. “Now they want to go back and take it away without going to the bargaining table.”

Past efforts to reform pension spiking have produced loopholes, as was shown in the Bell salary scandal. Although CalPERS adopted its own rules to limit end-of-career salary hikes in 1994, former Bell City Manager Robert Rizzo was able to boost his salary 47% in one year, resulting in a much higher pension.

CalPERS knew of the hike but gave the OK after a deputy city manager showed that several other managers and the elected council members were getting similar increases.

catherine.saillant@latimes.com