The Wall Street Journal had an interesting article recently about pension spiking, a practice where workers use the calculation of their pension benefits to their advantage:
Pete Nowicki had been making $186,000 shortly before he retired in January as chief for a fire department shared by the municipalities of Orinda and Moraga in Northern California. Three days before Mr. Nowicki announced he was hanging up his hat, department trustees agreed to increase his salary largely by enabling him to sell unused vacation days and holidays. That helped boost his annual pension to $241,000.
This is entirely legal, but it amounts to real money spent on the part of state and municipal retirement systems:
Mr. Nowicki recently turned 51 years old. If he lives another 25 years, his pension payments will cost the fire district an estimated additional $1 million or more over what he would have received had he retired at a salary of $186,000, not including cost of living adjustments, a fire board representative said.
And, even though Mr. Nowicki is “retired,” he is still employed by the fire department as a consultant earning $176,000 a year.
Teachers are able to take advantage of these provisions as well, sometimes through informal ways like selling back vacation or sick days, and sometimes more subtly, through their district-negotiated contracts. In my recent study of large urban district salary schedules, I discovered an interesting example from the state of Florida. In Florida, teachers are awarded retirement benefits based on their salary over their last five years on the job. So, a district that opts to pay their teachers high salaries for these five years has to compensate them slightly higher for those five years only. But the state will be paying higher retirement benefits, based on these higher salaries, for the rest of that teacher’s life.
Broward County, Fla., for instance, gives teachers an average raise of only $320 in their first 10 years on the job, but back-loads $20,000 in raises into a short time period between year 18 and 21 on the job, packing almost 40 percent of all experience-based compensation into these three late-career years, a stage when teachers are unlikely to gain effectiveness in a commensurate way. This trend has accelerated over the last decade, as teachers crossing the threshold from 20 to 21 years of experience in Broward County have netted average raises of 16.1 percent, compared to 5.2 and 6.5 percent raises, respectively, for teachers crossing the 18- to 19-year and 19- to 20-year thresholds.
