State

Practice of boosting Stanislaus employees' last year's salary draws public eye, ire

Records obtained through a Bee lawsuit cast light on a Stanislaus County pension system that richly rewards top government and law enforcement employees and creates incentives for employees to retire early.

More than two-thirds of the county's top 50 pensioners are paid more in retirement than when they worked. They include former department heads and managers in the chief executive office, environmental resources, behavioral health, the sheriff's office, engineering and other county departments.

For years, the Stanislaus County Employees' Retirement Association kept a tight hold on pension records for retired employees of the county, Ceres, the courts and five special districts. That changed last month when a Superior Court lawsuit seeking disclosure of the records was decided in favor of The Bee, the California Newspaper Publishers Association and the California First Amendment Coalition.

The records reveal that spiking — the practice of using vacation cashouts and other compensation to boost retirement pay — was common among the 50 StanCERA retirees whose pensions exceed $100,000 a year.

Detailed records for 10 retirees show that spiking boosted retirement pay by 13 percent to 33 percent, causing up to a $515,000-per-person increase in the anticipated cost of funding their pensions for life. The average pension increase from spiking was 22.5 percent, driving up lifetime pension costs for the top 50 retirees by an estimated $20 million.

The records also show:

80 percent of the top pensioners retired from government service before turning 60. The average retirement age was 56.8 years.

Eight of the 16 top- earning law enforcement employees who retired since 2000, including three assistant sheriffs, left before the age of 55. Public safety employees can retire at 50 with up to 90 percent of their pay. Those who work more than 30 years can get more than 110 percent of salary.

The top 2 percent of StanCERA pensioners receive 9 percent of the $71.5 million in annual payments to StanCERA's nearly 2,800 retirees.

Stanislaus County is in the same boat as other jurisdictions in California that have granted generous benefits to employees in better times and now are faced with meeting obligations with pension funds depleted by stock market losses. Besides liberal rules letting retirees apply many forms of pay to retirement, they get cost-of-living adjustments compounded annually that steadily increase their pensions.

Much is at stake for taxpayers, because the county and other employers have to pump money into Stan-CERA's $1 billion pension system if it becomes underfunded.

Some county leaders believe generous benefits work against the goal of retaining experienced people in departments such as the sheriff's office.

"We lose so much knowledge out of the Sheriff's Department when they retire at 50," county Supervisor Vito Chiesa said. "They may not be as physically fit, but they have the investigative skills and general knowledge that is invaluable to the department."

Public service extras

The pensions for public service employees are more lucrative than the defined benefit retirement plans in the private sector, where the standard pension might be 60 percent to 70 percent of a person's average salary.

Most StanCERA members can claim the compensation from their final year, or the year in which they earned the most pay, as an all-important factor in determining their pensions. (In the private sector, the employee's compensation is averaged over three years, five years or their entire career.)

To calculate retirement benefits for members, StanCERA multiplies the employee's final-year compensation by their years of service, a benefit factor and another factor based on their retirement age. The formulas for most employees are established in agreements negotiated by employers and union groups.

"Spiking" occurs when employees who are planning to retire cash out unused vacation time and apply the amount to their final-year compensation. StanCERA allows it as long as the time is converted to cash before the employee's last day.

Other pay items may contribute to retirement, such as car allowances, deferred compensation, uniform allowances, K-9 or special assignment pay for deputies, or additional pay for bilingual employees. Overtime is not included, but leftover sick days can be cashed out up to a limit and the amount above the limit applied to years of service.

Court case ups pay base

StanCERA administrator Tom Watson said the pension system has to include the compensation because of a 1997 California Supreme Court case and subsequent court decisions. In the "Ventura decision," the court held that most forms of cash compensation should be included in pension calculations.

In Stanislaus County, labor agreements specify how much unused vacation may contribute to retirement. Managers can claim the amount of unused vacation and holiday time they can accrue in a year, or 316 hours.

Records show that Stan- CERA's top pensioners, almost all of whom worked for the county, cashed out up to $33,000 of vacation per person in the 12 months before retirement.

Before he retired in March 2008 at age 59, former County Counsel Mick Krausnick had $300,511 in final-year compensation that could contribute to retirement. It included his base pay, plus $32,596 from a vacation cashout in May 2007 and $12,322 from a car allowance, deferred compensation and other items.

His pension was calculated at $227,820 a year and, with a cost-of-living increase and medical stipend, has grown to $241,440 a year. Had his pension been based on his regular pay of $245,870 in his final year, it would be have been closer to $194,000 a year.

If he lives until age 75, the additional pension payments will cost StanCERA about $672,000.

Pension tops salary

Raul De Leon, a former sheriff's captain, retired last year at age 51 with a pension of $153,552 a year, much higher than his base pay of $136,863 during his final year. Records show he cashed out $19,657 in unused vacation before leaving in August 2008 and his final compensation included an additional $4,383 from deferred compensation and a uniform allowance.

Spiking wasn't necessary to push former Sheriff Les Weidman's pension above his final annual salary of $168,292, according to county records. As an elected official, he did not earn vacation time in his 14 years as sheriff. But the benefit for law enforcement and his 35-plus years of service gave him a starting pension of $184,572 in August 2005.

Cost-of-living increases, compounded annually, have driven Weidman's pension to $202,288 a year.

Krausnick, De Leon and Weidman could not be reached or did not respond to requests for comment.

"These people operate in a different environment than you and I," said Mark Scon-yers, a Modesto benefit plan administrator who designs pension programs for private industry. "In the private sector, no one would dream of offering a plan like this, because it exponentially grows over time. Private companies don't want to have the obligations and the liabilities."

Sconyers said one danger of spiking is that the pension system might not be adequately funding additional costs.

Retirement systems are like parents who invest in an interest-bearing account for their children's college education. After figuring the costs of tuition, books, food and housing, the parents estimate if the money invested with interest will cover the costs.

In a similar way, Stan- CERA estimates the costs of pensions for its members based on retirement patterns, mortality rates and other factors. The benefits are funded from investment returns and contributions from employers and employees.

According to a standard annuity calculation, StanCERA would need $2,726,545 to fund a pension based on Krausnick's salary his final year. To plan for pension spiking, StanCERA would need an additional $475,319 for this one retiree. And the cost multiplies with every employee who engages in spiking.

Watson, in a written response, said actuaries review data regularly in forecasting StanCERA's future liabilities and making adjustments to ensure the system is properly funded.

Previous checks criticized

Officials have criticized the work of a previous actuarial firm for StanCERA, so some question how well spiking costs have been monitored.

"I don't have real confidence that they are considering that," said Jim DeMartini, county Board of Supervisors chairman and a Stan- CERA board member.

Dennis Nasrawi, a retired county employee, said most county retirees are not getting such lucrative pensions. The retirement benefits for managers and other employees were greatly improved seven or eight years ago and now many of them are retiring, he said.

He said spiking final-year pay is common. Much of the county work force can cash out 80 hours of vacation.

"I would say anyone who doesn't do it is a fool," Nasrawi said. "I would believe that every management person does it and so does every employee who can do it. It is what the rule says they can do."

Bee staff writer Ken Carlson

can be reached at kcarlson@modbee.com or 578-2321.

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