What Happened?
A local taxpayer watchdog group filed a lawsuit against the city of Phoenix to put a stop to pension spiking for public safety officers. The lawsuit was in direct response to reports of city policy allowing public safety retirees to increase retirement benefits to unreasonable amounts at the detriment to Phoenix’s finances.
The Goal
The Goldwater Institute called on the city of Phoenix to end its policy that allowed senior police officers, firefighters and personnel to increase the amount of their pensions by cashing in their unused sick days, vacation time and any other benefits before retiring. When public safety employees cash in on benefits and days off in the last few years of employment, they are able to inflate their salaries which then set the amount of money they will receive in pension payouts during retirement.
Arizona law considers spikes in pensions to be illegal and abusive misuse of taxpayer dollars. The Goldman Institute has filed the lawsuit on behalf of Phoenix taxpayers to stop the wasteful practice.
Thus far, many Phoenix public safety retirees have become millionaires through pension-spiking tactics, while 10 have managed collect more than $700,000 in lump-sum retirement benefits through the Deferred Retirement Option Plan. All public safety employees accused of being involved in the pension spiking have received annual pensions of more than $114,000 a year as well as the inflated benefits - which is straining the city’s budget.
Breakdown Of Evidence
According to city records, upper-level managers with a long history with the public safety department have the highest salaries of police and fire employees. These workers are benefiting the most from pension spiking practices, while rank-and-file officers are not able to take advantage of the tactic.
In Phoenix, the average public safety employee pension of $59,341 is already $10,000 more than the statewide average, which likely contributed to the city’s increase in public safety retirement costs from $7.2 million in 2003 to $129 million in 2014, along with losses from investments during the economic downturn. Phoenix taxpayers pay higher premiums to the Arizona Public Safety Personnel Retirement System compared to other cities as the costs are based on member liabilities which are impacted by spiking practices.
Spiking Investigation
Pension spiking is an understood practice many states are looking to eliminate. In Pennsylvania, the Greensburg Salem School District recently audited its finances and discovered evidence of pension spiking. Six administrators and teachers cashed in benefits to create a $140,000 boost in salaries combined to ensure higher pension payments.
The pension spiking was able to occur unnoticed due to an error in the system, allowing for six employees to significantly increase their payments while the district had to cut staff and eliminate programs for students to balance the budget. The district’s superintendent benefited the most from the pension spiking incident, reporting a final salry of $173,452 before entering retirement, which is more than the state’s governor earns.