California Supreme Court Curtails Pension Abuse by Law Enforcement Officers, Others

How do you rake in more money after retirement than when you worked? One way is to become a California police officer, sheriff, or sheriff’s deputy.

As I reported in my book on government-employee pension systems, California Dreaming: Lessons on How to Resolve America’s Public Pension Crisis, former San Francisco Police Chief Heather Fong was paid more than $528,000 in her last year as chief, but more than $303,000 of that were payouts for unused sick, vacation, and comp time before retirement, which was used to increase her lifetime pension.

When Fong left office at age 53, she received a government pension of $277,656 a year, a lot more money than she received when working ($187,875). I noted in California Dreaming that other retired law enforcement officers—for example, former Ventura County Sheriff Bob Brooks and former Merced County Sheriff Mark Pazin—are also making more money retired than when they worked. Apparently, cops don’t mind ripping off hard-working taxpayers.

One way that government employees accomplish this scam is through “pension spiking,” using “special compensation” in their final year or years of work to boost their final pay, which is used to calculate their lifetime pension benefits. The special compensation could include overtime pay, unused vacation and sick day cash outs, allowances, and bonuses. Fong claimed more than $300,000 of special compensation in her final year. Each government employee has an incentive to bump these up in the last few years of service since these are the years used to calculate their pensions. Pension spiking adds to the immoral mountain of pension debt that our children and grandchildren will have to pay. But two recent court decisions have begun scaling back pension spiking.

Former Gov. Jerry Brown (D) and the California Legislature sought to rein in pension spiking through reforms included in the 2013 California Public Employees’ Pension Reform Act (PEPRA). The Alameda County Deputy Sheriff’s Association, and other groups, filed lawsuits over PEPRA to keep certain types of compensation pensionable, such as accumulated vacation cash outs, in order to inflate their retirement pensions.

In a unanimous ruling on July 30, 2020, the California Supreme Court upheld PEPRA reforms that closed loopholes used by county workers to spike pensions. The decision is limited, however, to employees of 20 California counties that operate their own independent pension systems under the parameters of the County Employees’ Retirement Law of 1937. But the “1937 Act counties,” as they are called, are some of California’s most populous counties, including Alameda, Contra Costa, Los Angeles, Orange, Sacramento, San Diego, and San Mateo. Unfortunately, the court did not make sweeping changes to the “California Rule,” which should be abolished, as I explain in my book.

The Supreme Court ruled that the governor and state legislature did not violate contracts by enacting PEPRA to amend the law governing the 20 county pension systems, even though the reforms affect employees hired before the law went into effect on January 1, 2013.

“It would defeat this proper objective [preventing abuse of the pension system] to interpret the California Rule to require county pension plans either to maintain these loopholes for existing employees or to provide comparable new pension benefits that would perpetuate the unwarranted advantages provided by these loopholes,” Chief Justice Tani G. Cantil-Sakauye wrote in the court’s decision.

By calling spiking practices “unwarranted advantages” and “loopholes” that are not protected by contracts, the California Supreme Court has opened the door to future lawsuits to further restrict spiking practices. Steve Berliner, an attorney with the Los Angeles-based law firm Liebert Cassidy Whitmore, said, “There could be other circumstances where there are similar types of spiking that may be subject to further pension reform and under this ruling would appear to be something that can be changed.”

This ruling is yet another setback for pension spiking. Last year, in another unanimous decision, the California Supreme Court upheld PEPRA against a challenge by Cal Fire Local 2881, the union representing Cal Fire firefighters, who wanted to continue inflating their pensions by purchasing additional years of service credit through the California Public Employees’ Retirement System (CalPERS). From 2003 until 2013, the state allowed government employees to purchase up to five years of service credit that would boost their pensions as if they had actually worked that time. The court’s 2019 ruling upheld the 2013 repeal of the “air time” benefit, which had allowed service time to be untethered from actual work time.

As California’s progressives look for ways to “Defund the Police,” a good place to start is to end pension spiking by law enforcement officers, who are paid to protect our children, not to burden them with billions of dollars of pension debt. But the long-term goals should be to eliminate all forms of pension spiking by all government employees, abolish the “California Rule,” and end California’s outdated defined-benefit government pensions and replace them with more reasonable and fiscally sound 401(k)-style defined-contribution plans. The gravy train must end.

Lawrence J. McQuillan is a Senior Fellow and Director of the Center on Entrepreneurial Innovation at the Independent Institute. He is the author of the Independent book California Dreaming.
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