As Hawaii and other states struggle with the increasing cost of pensions for state retirees, they have become aware of a pattern of employees spiking hours of overtime worked during their closing years to increase their pension benefits. Gov. Neil Abercrombie has prudently called for basing pensions entirely on base pay, but the Legislature so far has made a mockery of the proposal.
Eliminating overtime and other extra payments from the equation for determining pension benefits would save $13 million in the 2012 fiscal year state budget and $19 million in county taxes, according to Wesley K. Machida, administrator of the Employees’ Retirement System. Abercrombie said the pension fund’s unfunded liability of $7.1 billion would decrease by $500 million.
"As a former probation officer, I understand the need to work overtime," Abercrombie told legislators in written testimony. "However, overtime pay is applicable only for that time, and the state and counties should not be paying additional pension benefits for overtime."
The state Senate, however, this week approved a weakened bill that would reduce the amount of overtime to be factored into pension benefits to 75 percent in the 2013 fiscal year and gradually to 50 percent in 2017. No further decrease is foreseen in the watered-down bill. Some employees near retirement may simply conclude that they will need to register more overtime than they had planned.
Across the country, state employees have found different ways to boost their salaries in the final years, according to a report last year by the Pew Center on the States.
"In Delaware in 2008," it said, "newspaper reports detailed ways in which correctional officers’ overtime payment led to higher pension benefits."
"It is widespread, it is chronic and is very, very expensive," New York Gov. Andrew M. Cuomo said from his position as state attorney general last year. "We can’t afford it anymore."
Cuomo at that time held out the possibility of bringing fraud charges against those involved in egregious cases.
The New York investigation found that a deputy commissioner of civil defense and disaster who had never before recorded any overtime booked 1,629 additional hours during his final three years on the job. A shovel operator put in an average of 144 overtime hours a year between 2002 and 2005, and 830 hours in 2007 and 2008, close to his retirement.
"Instances of suspicious salary increases in the years just prior to retirement are all too common," Boston College’s Center for Retirement Research reported in August.
Those include complicity by bosses authorizing not only overtime but temporary promotions or last-minute raises to soon-to-retire employees.
While most city and state employment issues are addressed in public employee union contracts, terms of employee pension plans are written into Hawaii state law. If this year’s Legislature neglects to adequately rewrite the rules, which seems likely as unions exert pressure, the Abercrombie administration should order an investigation similar to that carried out by Cuomo in New York to document its seriousness.