State Director Dayton Nakanelua Testifies in Opposition to "Spiking" Bill
Senate panel moves bill to cap public pensions
By Rob Perez
Despite opposition from public-sector unions, a Senate committee advanced a bill Wednesday that would cap the amount of overtime used in calculating pensions for public workers whose non-base pay jumps substantially near the end of their careers.
The proposal, designed to address a practice called pension spiking, would exclude from the calculation any increases in non-base pay topping roughly 20 percent over the final 10 years of employment.
The measure is one of multiple approaches that the Employees' Retirement System is pursuing to try to close the huge gap between the cost of providing retiree benefits and the money being collected to underwrite those benefits.
In fiscal year 2011, for instance, workers and their employers contributed $715 million to the retirement fund, while nearly $1 billion in benefit payments was issued. As of June, the system's unfunded liability totaled more than $8 billion.
"This is one important step to deal with the unfunded liability and growing pension liability as a whole," ERS administrator Wes Machida told members of the Senate Judiciary and Labor Committee on Wednesday.
But major unions, including the Hawaii Government Employees Association, United Public Workers, police and firefighter organizations and the University of Hawaii Professional Assembly, submitted testimony opposing Senate Bill 2750.
Supervisors approve all overtime and to not include such compensation in pension calculations would be unfair, several of the unions said.
"It is indisputable that the anecdotal examples given of ‘spiking' by public employees to gain an advantage at retirement are a reflection of the available workforce rather than the manipulative efforts of any individual public employee," J.N. Musto, University of Hawaii Professional Assembly executive director, said in his written testimony. "The decisions that lead to increases in the wages being paid … are entirely in the hands of the public employer."
Florence Kong Kee, UPW government affairs specialist, said in an interview that her union opposes spiking — the practice of employees intentionally working excessive overtime to boost their pensions. But no data have been produced to show that spiking is a problem, she said.
If it is, the employer and unions should address the problem through the collective bargaining process, Kong Kee said. "We strongly feel that legislation is not the way to go."
Machida told legislators that more than 670 of 5,000 workers who retired from 2008 to 2010 had large enough increases in their non-base pay in their final years to meet the spiking criteria in SB 2750.
Projecting such numbers over 10 years, spiking could add as much as $150 million to the retirement system's unfunded liability, he said.
Under the anti-spiking legislation, backed by the Abercrombie administration, the 20 percent cap would apply to state and county employees hired beginning July 1 and to current workers three years later. Pensions are based in part on a worker's highest three or five years of compensation, depending on the hire date.
SB 2750 also includes a provision that would require employers to cover the added unfunded liability due to spiking involving their workers.
Sen. Clayton Hee, Judiciary Committee chairman, said spiking is a small contributor to the unfunded liability problem.
"It's one piece of the puzzle, but it's not the big enchilada," he said.
Still, unless structural changes are made to the system, the problem likely will grow, Hee added.
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