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Is 'pension spiking' milking taxpayers or smart personal finances?

Cashing in unused sick leave, payment in lieu of vacation, and/or payment for any fringe benefit to “spike” one’s final compensation is causing a certain amount of public outcry

I wonder what would happen if I offered a training called ‘Game Your Pension System and Become a Millionaire.’ While that wasn’t the headline of a recent front page article in Arizona’s largest newspaper, it might as well have been. 

In a special investigative report, Arizona Republic reporters Craig Harris and Beth Duckett revealed that some Phoenix police and firefighters became millionaires shortly after retiring by spiking their pay and resulting pension benefits through cashing in unused sick leave, vacation time, and deferred compensation.  

This “pay spiking” reportedly violates a state law that prohibits public employees from using “unused sick leave, payment in lieu of vacation, payment for unused compensatory time or payment for any fringe benefit” to “spike” the final compensation on which retirement benefits are calculated. But it’s allowed by several Arizona cities, including the two largest (Phoenix and Tucson).

The reported pay spiking included:

•    At least a dozen Phoenix public safety officers adding $100,000 or more each to their salaries in their last few years of work, a key factor in calculating pensions
•    Five added more than $200,000 to their paychecks and one added more than a quarter-million dollars — primarily by cashing in unused sick leave

Around the Nation
Similar pay and pension spiking has made headlines around the nation, in places like: 

•    Washington 
•    Nebraska  
•    California 
•    Minnesota 

In Michigan, the example used to demonstrate the cost of public employee spiking is a police officer. Indeed, most of the pay and resulting pension spiking headlines address the practice by police and fire department veterans who take advantage of loopholes not available to other public employees.

Politics at Play?
Would it surprise you that politics might play a part in pension spiking? In Washington, local officials seeking to cut budgets approved late pay increases to encourage retirements. Veteran law enforcement officers and firefighters were able to permanently increase the value of their pensions. The local government saves money by replacing the retirees with cheaper new hires.

Meanwhile, the local savings become higher costs for the state’s pension system. 

Who pays? Taxpayers. 

Phoenix Mayor Greg Stanton wouldn’t say whether he supports ending the spiking practice, which is reportedly popular with one of his key constituencies – police and firefighters. Some might question whether this is trading tax payer supported pensions for votes. Some members of the public think so

Other Reactions to Pension Spiking
One ex-firefighter quoted in the Arizona Republic article — who took home more than a million bucks in retirement incentives and pension benefits — said the spiking policy should end because the city can’t afford it. 

He also said he would have been foolish not to take advantage of the policy.

In the wake of articles by Associated Press reporter Mike Baker on the spiking in Washington, Matt Zuvich, a lobbyist with the Washington Federation of State Employees, testified before a legislative committee that the union opposes pension spiking because it undermines stability of the systems along with public trust. 

Brian Sonntag, a former Washington state auditor, said local officials and retirees in involved in the spiking showed a clear disregard for what’s right.

“They’re thumbing their noses at colleagues — the people who follow the rules — as well as the public.”

Speaking of colleagues, I wonder how recruits and younger officers facing hiring freezes or furloughs might feel about pension spiking: “Great, more positions for us,” or “Thanks for mortgaging our future pensions.” 

What’s Your Reaction?
So, PoliceOne readers, what do you think? 

•    Kudos to any officer who can benefit from pay and pension spiking?
•    Bad public policy? 
•    A burden for the rest of the profession because it undermines public trust and pension stability? 
•    None or all of the above? 
•    Is this an issue in your department, community and state? 
•    How is it being handled?

Weigh in with your comments. And keep in mind, your comments beneath this column are open to the public (it is not an LE-only, password-protected item).

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