Time to spike spiking practice

Last year’s Legislature backed away from halting the practice of state and county employees booking large amounts of overtime late in their careers to bolster their pensions, as labor unions denied that such a practice exists. A closer look since then has verified the cleverness of numerous senior employees spiking overtime to boost their pensions. Lawmakers should move ahead to end the practice.

The Employees Retirement System of Hawaii has estimated that 670 members — about 13 percent — engage in "spiking criteria," based on a sample group of about 5,000 members who retired from 2008 to 2010. City auditors determined in December that each of the 10 highest-paid Emergency Medical Services employees nearing retirement were paid nearly $140,000 a year, more than double their base salary of $63,252.

Gov. Neil Abercrombie called last year for eliminating overtime and other kinds of extra payments in the final years of state workers’ employment as factors in determining pensions. As a compromise, he now has given his support to "threshold limitations" described in a more modest Senate Bill 2750, which would limit increases to 20 percent above base pay in allowing overtime payments to be a factor retirement pay.

Wesley K. Machida, the retirement system’s administrator, described to legislators how spiking works and why near-to-retirement employees are eager to put in mammoth amounts of extra hours.

Assume that a public employee has averaged a salary of $50,000 over 25 to 27 years, averaging $56,243 in the last three years, Machida said. That would result in a maximum yearly pension of $33,746. However, if that same employee put in enough overtime and other non-base pay to boost the total pay to $200,000 during each of the last three years, the annual maximum annual retirement allowance could reach $120,000.

Machida noted that 10 state retirement systems exclude or restrict overtime in their pension calculations, and 15 states have anti-spiking provisions, many with criteria more strict than put forth in the Hawaii legislation. The Pew Center on the States reported in 2010 that the clever method of boosting pensions is commonplace among state employees.

In Hawaii, public employee and employer contributions to the retirement system in the last fiscal year totaled $715 million, while nearly $1 billion was paid in retirement benefits. The trend is similar in the current fiscal year, which Machida said means "more solutions will be needed to prevent the investment corpus from being depleted." The alternative would mean larger contributions by employers — i.e. taxpayers.

Abercrombie warned last year that eliminating overtime as factors in retirement pay would save $13 million in the state budget and $19 million in county taxes, reducing the unfunded liability of $8.2 billion by a half-billion dollars.

The public employee unions now ask that the issue be addressed in the collective bargaining process with the state and counties, where they obviously are more confident in maintaining the status quo.

While overtime, ideally, should not be added at all to salary in eventually determining retirement pay, the Senate bill would be worthwhile in putting a lid on spikes although not eliminating them altogether.

The halfway bill should be approved with the expectation that subsequent legislation phase out such chicanery altogether.