“Pension Spiking” is the term used
to describe the common practice whereby state and government employees contrive
to boost their pensions in the last years of their employment. Since most
public service employee pensions are “defined benefit” plans where the benefit
is largely determined by the average of an employee’s highest three years pay,
substantial increases in pay over the final three years of employment can lead
to dramatic increases in retirement benefits.
Pension spiking has been going on
for years throughout the country, but it has been raised to a new level here in
Connecticut during the two terms of Democrat governor Dannell Malloy. In
particular, by appointing a number of loyal Democrat legislators to judgeships
or other high ranking positions in his administration, he has “spiked” their
retirement benefits.
Legislators in Connecticut are
considered part-time employees and only make about $30000 per year. However,
they do participate in the State’s defined benefit pension plan. So, if they serve in the legislature for 35
years, they could expect to receive 70% of their pay or about $21000 per year
as a pension. Even though that may seem low, it compares favorably with what
most of their constituents will get from Social Security.
But there is a pot of gold at the
end of the legislator’s rainbow, especially if they have been a loyal Democrat
in this “blue” state. If they can be promoted to a high paying job as an administration
or a judge, they can “spike” their pension’s in just three years. One of
Malloy’s first acts as Governor was to appoint an attorney friend and long-time
legislator from his home town of Stamford to a six-figure job as his top legal
advisor. Later, he became a judge on the State’s highest court.
Here is the most recent example.
State Senator Eric Coleman resigned his post in the State Legislature just
minutes before the new session opened yesterday. He is 65 years old and has
served as a Senator from Bloomfield for the past 22 years. Before that he had
served in the lower house for 11 years. His combined 33 years of service would
have allowed him to retire on about $20000 per year or 66% of his $30000
legislator’s pay.
But Coleman retired in expectation
that he would receive an appointment to a $150000 judgeship that he could hold
until the mandatory retirement age of 70. It must be a good expectation since
he has not even been vetted by the legal board that is supposed to recommend
judges. In just three years as a judge, Coleman’s average pay for pension
purposes will be at least $150000. At age 70 this pension “spiking” will enable
him to retire on 75% of $150000. At age 70 his retirement benefit will be about
$112500 per year, $90000 more that he would have gotten by staying in the
legislature. Although Coleman said he agonized over the decision, it was
apparently a no-brainer. He said,
“As you might expect, serving in the legislature was one of the greatest honors of my life. I made a lot of good friends here…So it’s a very difficult decision, but I had discussions with the appropriate people, including my wife. I guess the ultimate conclusion is this was time.”
It certainly was a good move for
him but it will add a couple of million dollars to the State’s pension
liability. At 4% interest it will take about $2,250,000 to fund the $90000
annual increase in his retirement benefits due to “spiking.” The State’s
pension liability grows and grows, and is now one of the largest items in
Connecticut’s budget.
Spiking is a non-partisan issue.
At the same time as Coleman resigned from the Senate, Republican Senator Rob
Kane of Waterbury resigned to take a position as Republican state auditor. He
hasn’t served in the Senate as long as Coleman but his new salary of about
$150000 will also boost his eventual retirement benefit substantially.
This year the State faces a $1.5
Billion deficit and it will be forced to cut services more and more. Already
cutbacks are being suggested for aid to cities and towns. Promises made to fund
education, social services, and infrastructure improvement will have to be
broken.
Only pension benefits will go
untouched. I know that contractual obligations to public service unions are
sacrosanct, but there is no contractual obligation to include legislators,
judges, and high profile political appointees in the State’s pension plan.
Their existing benefits could easily be frozen, and their future retirement
benefits could be a combination of Social Security and a 401k type plan, the
same combination that most of the rest of us have to rely on for retirement.
But as long as the Governor and
the Legislature participate in the State’s Pension plan, there can be no
reform. What incentive do they have to reform a plan that benefits them so much?
All they have to do is bide their time until they reach the pot of gold at the
end of the rainbow.
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