When auditors recently reviewed payroll data for the city agency that operates ambulances, they discovered that the 10 highest-paid employees worked huge chunks of overtime, more than doubling their annual salaries on average.

The top-paid Emergency Medical Services worker, for instance, earned nearly $150,000 in non-holiday overtime pay in fiscal 2009, significantly boosting a base salary of $60,072. The previous year another EMS employee earned more than $116,000 in overtime — at one stretch working 109 consecutive days — to enhance a salary of $62,676, the auditors found.

Over three years through fiscal 2010, the 10 workers were each paid an average of nearly $140,000 annually, more than double their average base salary of $63,252, according to the December audit. The extra pay was due entirely to non-holiday overtime.

While the EMS cases were unusual, they highlight a problem that is contributing to a severe funding shortfall in Hawaii’s retirement system for county and state workers. Employees who earn substantially more than their base salary near the end of their careers to boost future retirement pay — a practice known as pension spiking — are adding to the financial woes of Hawaii’s Employees’ Retirement System.

While spiking is not against the law — the overtime hours, after all, are authorized by supervisors — it is one of multiple factors that have created an unfunded liability estimated at roughly $8.2 billion. That shortfall, which represents the cost of covering future retiree payments beyond what the system is projected to have on hand, ultimately will have to be covered by the state and counties — and taxpayers.

"We have a large unfunded liability, which will grow in the future if things remain the same," said ERS Administrator Wes Machida.

The problem of employees gaming the system to boost their pensions, though not considered widespread, has generated enough concern that the agency has been working on draft legislation that would limit the amount of overtime allowed for determining pensions. A bill may be introduced at the Legislature as soon as this week.

A small number of excessive overtime cases can have a significant effect in driving up the projected costs for the retirement system. While the amount employees and their employers are required to contribute to the system each year is determined in part by their base salaries, the actual pension payments are calculated based on their three years with highest overall compensation, including overtime, differentials and other supplemental pay. The wider the gap between base salary and supplemental pay, the more the system’s funding will fall short of promised benefits.

If the 10 highest-paid EMS workers were to retire soon, for instance, their cases would add an estimated $4 million to $5 million to the unfunded liability total, according to an ERS consultant’s projections.

Add to the mix numerous other cases and the overall impact is much larger.

To get a sense of what that tab is, the retirement agency has asked its consultant to calculate the estimated amount based on retirements from the past several years. It was still doing the calculations as of late last week.

Another bill that would indirectly address the spiking issue stalled last year at the Legislature but still can be considered in the coming session. In its original form, the measure removed overtime and other non-base pay from the pension calculation altogether, though not retroactively.

"The unfunded liability is so significant that we must truthfully address whether the system and the state can continue to provide annual funding to maintain the present system, increase funding to improve the existing status of the system and/or afford to sustain the current level of benefits being offered," state Budget Director Kalbert Young wrote in testimony.

But public-sector labor unions, police and fire department leaders and public workers opposed the bill, citing, among other things, the effect it would have in triggering waves of retirements. If overtime and other supplemental pay can’t be counted toward pensions, many workers eligible to retire will do so, creating shortages in critical areas, opponents said.

Employees also said they often are ordered to work overtime, especially in jobs to protect the public or care for the ill, and that should be counted toward their retirement.

Workers told legislators they have been willing to work for wages typically lower than what is available in the private sector in part because of the pension benefits they have been promised all along.

"I never worked in civil service for the money," said Marvin Mitchell, a pharmacist for the state for 24 years. "It was always the benefits, the largest being the pension, that one shining light at the end of the tunnel."

To change how pensions are calculated would be fundamentally unfair to existing workers, Mitchell added. "That would be heartless."

The state already has begun addressing the unfunded liability crisis, which largely developed after money consistently was diverted in years past from the retirement system to the general fund.

No increases to existing benefits are permitted, and pensions for new employees hired starting this year will be based on their five highest-paid years, not three. The latter change is intended to stem the financial bleeding in the years ahead.

The estimate that the retirement agency is getting from its consultant will represent the first time in recent years that anyone has tried to quantify the impact on unfunded liability from unusually large compensation surges near the end of workers’ careers. That to some degree will reflect how overtime is managed.

Some agencies, including those involving police, fire, prison and other critical around-the-clock services, generally incur significant overtime.

At the Department of Public Safety, which runs the prison system and has between 2,200 and 2,400workers, 75 employees worked more than 1,000 hours of overtime in fiscal year 2009 and 25 did so the following year, according to DPS. One thousand hours is the equivalent of 125 regular work days of eight hours each. One Sheriff Division supervisor exceeded 1,600 overtime hours in fiscal 2010, boosting her base salary of $32,320 by nearly $40,000 in regular overtime pay.

"We have concerns when we see numbers like that," said DPS Director Jodie Maesaka-Hirata, who was named to the job at the start of the Abercrombie administration more than a year ago.

Her top priority when she became director was to fill vacancies to help lower overtime, Maesaka-Hirata said. She added, however, that she did not find instances of overtime abuse.

The city’s EMS director, Dr. James Ireland, likewise had to deal with overtime issues when he took the job in July 2010.

Since then, he said, vacancies have been reduced, changes have been made to get more people in the training pipeline to fill positions and better controls are in place to manage overtime.

"I think we’re moving in the right direction," Ireland said.

Overall, the state and the city have seen significant drops in overtime compensation over the past few years, though it’s not clear how much of that decline is a result of administrators being forced to cope with smaller budgets or agencies becoming more efficient at managing overtime.

Mike Hansen, the city’s budget director, said departments are required to operate within salary budgets, which includes overtime. If an agency exceeds the overtime budget, it has to offset that elsewhere in salary funding, he said.

Luis Salaveria, deputy budget director for the state, said a more than 20 percent decline in overtime compensation since fiscal 2007 largely reflects downward pressure on budgets because of shrinking revenue. But administrators also are re-examining priorities and striving to become more efficient, he said.

Even though the majority of states allow overtime to be included in pension calculations, fiscal pressures are driving more of them to make changes that generally require employees to work longer, pay more into the system and get less upon retirement, according to Sujit CanagaRetna, senior fiscal analyst in the southern region for the Council of State Governments. Those same fiscal pressures are driving attempts to change Hawaii’s pension calculations.

"The goal is to have a properly funded retirement system with sufficient monies to pay out those promised benefits," said the ERS’ Machida.