A recently-released report (pdf) by the State Controller’s Office found the California Public Employees’ Retirement System (CalPERS) did a lousy job of identifying “pension spiking”―legal adjustments made in an employee’s final years to inflate retirement payouts―but didn’t find any instances of actual spiking.

“The good news is that my office sampled 11 employers within the CalPERS system and found no incidences of pension spiking,” Controller John Chiang said in a release accompanying the report. “The discouraging news is CalPERS’ lack of robust auditing, underutilization of advanced technology, and its generally passive approach to the problem invites abuse.”

The report estimated that one particular pension enhancement, Employer Paid Member Contributions (EPMC), granted by 97 of the reporting entities, would cost CalPERS extra pension benefits worth $796 over 20 years. Another 2,400 entities did not provide the information necessary to calculate what their adjustments might cost. CalPERS oversees pension benefits for more than 3,000 agencies.

Although Chiang said, “The State's largest pension system can and must be more vigorous in protecting taxpayers from this form of public theft,” he did not allege that any of the spiking practices were illegal. But it was noted that the Legislature recently ended the EPMC benefit for new hires.

The controller looked at CalPERS’ oversight of 11 public agencies (three state, two county, two cities and four districts) between July 1, 2010, and June 30, 2011, and found the pension fund didn’t review the terms of an employee’s pension until retirement papers were submitted. By then it was too late.

“The lack of up-front real-time accuracy verifications could potentially allow employees to inflate their pay until retirement, resulting in an increased pension benefit,” the report said.

The controller also criticized CalPERS for not effectively using automated electronic data mining tools and other risk assessment techniques. CalPERS performs annual reviews instead of scouring the monthly reports from the entities it oversees. And even then it focuses on whether an agency has employees making more than $245,000 a year.    

CalPERS defended its actions, pointing out the law is the law and it “has no discretion when an entity has complied with the statutory requirements for EPMC.” CalPERS, which provides benefits to 1.7 million state and local government employees, oversees an investment portfolio of more than $300 billion.

–Ken Broder

To Learn More:

Audit: CalPERS Lacks Strong Pension Spiking Controls (by Jon Ortiz, Sacramento Bee)

Pension “Spiking” to Cost CalPERS nearly $800 Million, Controller Says (by Marc Lifsher, Los Angeles Times)

Teachers' Retirement Fund Fails at Curbs on Pension Spiking (by Ken Broder, AllGov California)

California Public Employees’ Retirement System (California State Controller) (pdf)