Pension spike red flags ignored in California school districts

To guard against pension spiking, the California State Teachers' Retirement System has a system that electronically identifies suspiciously high pay hikes.

When accused of ignoring pension spiking among top school administrators, CalSTRS officials repeatedly pointed to this computerized safeguard. "Automated programs flag excessive salary bumps from one year to the next," CalSTRS CEO Jack Ehnes assured the public in The Sacramento Bee last year. "CalSTRS conducts reviews to determine whether the increase was appropriate or not."

The automated system does exist, but, in its review of anti-spiking efforts, investigators with state Controller John Chiang's office found that CalSTRS routinely ignored the system's warnings. Investigators who examined records for the automated programs over a two-year period concluded that "CalSTRS did not review, verify or follow up on pay increases that were flagged by the system."

That is an inexcusable dereliction of fiduciary responsibility by the pension fund's top leaders. To ignore evidence of pension spiking — what Chiang rightly calls a "form of public theft" — allows it to continue from a fund that faces $65 billion in unfunded liability.

School district audits, the retirement system's other major anti-spiking tool, are too infrequent to be effective, the controller's investigators said. At the current pace, the 1,900 agencies monitored by CalSTRS can expect to be audited once every 48 years. Moreover, most audits are conducted by private firms under contract. If evidence of spiking is detected, the private auditors' contracts are written in a way that effectively discourages follow up, the controller's office found.

In the course of their review, the controller's auditors conducted independent reviews of retirement activities at five school districts and found evidence of possible spiking at two — the San Francisco and San Diego unified school districts. One top administrator in San Francisco received a 26 percent pay raise during his last six months on the job; another received a 20 percent increase in his last year. Large end-of-career pay raises are clear warning signs of pension spiking, but CalSTRS ignored them. These pension-padding raises were handed out at the same time rank-and- file teachers in the district were experiencing furloughs and pay cuts.

Adequate controls are in place to prevent pension spiking for rank-and-file teachers, most of whom receive modest pensions and by law cannot collect Social Security. The controller found, and CalSTRS officials concur, that spiking occurs almost exclusively among higher-paid school administrators who are in position to cut sweetheart end-of-career deals.

When the controller's report was presented to the retirement system's board last week, CalSTRS CEO Ehnes told board members "There's no new news here."

Try telling that to more than 400,000 teachers in California who are depending on a dangerously underfunded retirement system to support them in their old age. Tell it to taxpayers who are being asked to infuse the fund with more cash to keep it solvent. Ehnes should be stunned that his agency, for years, failed to use the tools at its disposal to prevent public theft. That he isn't speaks volumes.