Audit: Legal Pension Spiking Could Cost State Nearly $800M
Dozens of public agencies that contract with CalPERS have engaged in a legal form of pension spiking, putting the state on the hook for nearly $800 million over the next 20 years, according to an audit released Tuesday by the State Controller's Office, AP/KPCC's "KPCC News" reports ("KPCC News," AP/KPCC, 9/9).
Details of Pension Spiking
The legal practice involves employers withdrawing commitments to cover employees' pension costs in their final year of work and instead adding the value of the payment to the employee's salary. The practice was legal under a 1993 law but has since been prohibited for new employees.
The audit found that 97 agencies that contract with CalPERS have amendments allowing them to engage in the practice.
The amendments increased CalPERS members' compensation by $39.1 million in pensionable pay annually, which could result in as much as $796 million in such compensation over two decades.
The state audit also found that CalPERS failed to:
- Use automated controls; and
- Proactively review all payroll data.
While the pension fund has developed several tools for electronic risk assessment, it has not effectively used them and has only performed risk assessments once each year.
The pension fund also has insufficient resources for auditing all of the 3,100 public agencies with which it contracts. For example, the audit found that a local government contracting with CalPERS would only be audited by the pension fund every 66 years. Since the audit was performed, CalPERS has hired more staff, but the agency is still only capable of performing audits on a contracting entity once every 33 years, according to the controller's office.
In a release, Controller John Chiang (D) said the prevalence of such issues "invites abuse" and that the pension fund "must be more vigorous in protecting taxpayers from this form of public theft."
The audit recommended that CalPERS:
- Immediately address understaffing;
- Implement more rigorous and prevention-focused efforts to address pension spiking; and
- More effectively use its electronic risk assessment tools (State Controller's Office release, 9/9).
In response to the audit, CalPERS said it "will continue to evaluate and determine if we need to expand our review efforts."
The pension fund's board agreed that more resources should be focused on increasing the frequency of audits.
However, CalPERS also noted that "the scope of the [State Controller's] review coincided with several high-profile local government pension related cases" (State Controller's Office audit, 9/9).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.