Carolina Journal’s Dan Way reports on the legislature’s look into reforming what’s called pension spiking. Dan talked with Reps. Stephen Ross and Jeff Collins.
One common method to spike a pension is for an employee to defer payments for items such as signing bonuses, unused sick leave and vacation time, and other money not considered direct compensation. Pensions are determined in a complex formula based on the last four years of work income, so inflating compensation in the final years boosts pension benefits.
When those accumulated dollars are lumped together at the time of retirement, they “grossly inflate” the last year’s compensation, Ross said. That, in turn, jacks up the calculation for the employee’s pension to a higher rate.
Collins said a simpler fix than the complicated formula that was devised in the anti-spiking bill would have been to use a longer period of time, such as eight or 10 years, to calculate average pay on which to base the pension annuity.
“I think we would have had agreement from a lot of the groups fall apart if we tried to extend the four-year average to a longer average. I don’t think any of the state employees groups would agree to that,” he said.
The bill also imposes a cap on how much an employee’s pension may be. Once a certain level of deferred income has accumulated that would spike the pension calculation, the employing agency would be notified. The agency then would decide whether to keep compensation at the capped level, or exceed the cap and pay the difference back to the retirement system.
