Shocked by spiking?

Working added overtime to increase retirement benefits—i.e., pension padding or “spiking”—is an old tradition in the public sector, especially among police officers, firefighters and other employees working under contracts that provide them with ample overtime opportunities. This practice has been a major factor in the recent growth of six-figure pensions.

Here’s the thing: it’s perfectly legal. If you belonged to a retirement system that counted overtime and other forms of extra pay in your pensionable “final average salary” base, you’d have to be either lazy or crazy not to spike your pension as much as possible in the years before you retired (which could be after as few as 20 years). It’s no use blaming employees for doing something the system encourages them to do.

When he was running for governor in 2010, then-Attorney General Andrew Cuomo issued a preliminary report citing widespread pension padding. But he uncovered no evidence of widespread illegal activity or systematic administrative oversights by the state’s public pension funds.

Now Cuomo’s commissioner financial services, Ben Lawsky, reportedly is jumping  on the same issue, saying he will focus on pension spiking in his forthcoming audits of city and state pension funds.

“Spiking costs a lot of money,” Lawsky told The News. “We think it’s an area that hasn’t had sufficient focus and the Department of Financial Services is now going to ensure that our pension funds are doing everything they can to root out things like spiking.”

In fact, Lawsky’s own boss isn’t doing everything he can do to root out this problem.

For employees hired after April 1, 2012 (except some cops and firefighters hired under contracts in effect at that time), Cuomo’s Tier 6 pension changes will limit pension spiking a bit by removing accrued vacation pay from the pension base, stretching the final average salary calculation range from four from three years, and capping pensionable wages at the same level as the governor’s, currently $179,000.  It also slightly modifies an existing provision capping all overtime at $15,000 as of 2013, a figure that will grow with inflation in the future.

But even among new hires, these changes will not completely eliminate spiking for those who can (legally) work the system effectively. Why didn’t Cuomo’s Tier 6 plan call for limiting pension calculations to base salaries, period?  It’s a question Lawsky might want to pose to the governor.

Cuomo could minimize spiking for all current workers by trying to make it easier for counties and municipalities to restructure contractual work rules that drive up overtime, especially “minimum manning” requirements for police and firefighters. But that, in turn, would require repealing the Taylor Law’s Triborough amendment and the compulsory binding arbitration provisions for police and firefighters.

Unfortunately, the governor so far has been unwilling to touch Triborough, and his recent arbitration “reform” was watered down in order to placate unions.

Perhaps if Lawsky’s audits connect the dots between pension spiking and collectively bargained work rules, Cuomo will use it as cover to finally start demanding real reform in this area.

About the Author

E.J. McMahon

Edmund J. McMahon is Empire Center's founder and a senior fellow.

Read more by E.J. McMahon

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