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Cities Gird for a Flood of Retirements Fueled by Spiking of Pensions : Civil service: Change in state law is prompting workers to leave before new guidelines take effect June 30.

May 12, 1994|SCOTT SANDELL | TIMES STAFF WRITER

Douglas Gates will be a busy man come June 30.

As personnel director for the City of Hawthorne, Gates will have at least 28 vacancies to fill or eliminate by then. About 8% of the city's work force will have retired in the last several months of the fiscal year.

"That's about three times what we normally see in one year," Gates said. "It's going to make things very interesting around here."

Hawthorne, as it turns out, is not the only South Bay city bidding farewell to an unusually high number of employees, officials said. In Redondo Beach, 24 plan to retire. In Torrance, up to 92 safety workers eligible for special retirement benefits could leave this year.

A change in state pension law has prompted what one Hawthorne councilwoman calls a stampede of retirements. Workers, many of them police officers and firefighters, are leaving cities in a last-chance rush to inflate their pensions before new guidelines take effect.

The departures could muddy the financial and personnel picture in six local cities for years to come.

The problems stem from the elimination of pension spiking, an often-criticized practice written into the contracts of some public employees.

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Spiking agreements typically let workers convert unused sick leave and vacation time into cash during their final year of employment. The extra pay is then counted as a salary increase and used to calculate a higher pension.

That's how Richard McCarroll, a Hawthorne police officer for 28 years, boosted his pension in 1991. McCarroll said his base salary, around $49,000 a year, entitled him to a monthly pension of $2,300. Thanks to spiking, he receives $2,750 a month.

"It was a contract thing, a little icing on the cake," said McCarroll, 53, who now lives in Sedona, Ariz. "It's basically beer and dinner money, or maybe a little more than that."

But for the state Public Employees' Retirement System, the cost of pension spiking was huge. Although no one knows the amount with certainty, officials speculated that the practice could have cost taxpayers billions of dollars if left unchecked.

Local governments contracting with PERS to fund retirements weren't contributing funds for the extra benefits. Neither were the workers. The retirement system absorbed the cost.

In 1992, the retirement system said it would no longer pay for the spiked portion of pensions. It gave government agencies a grace period to remove pension spiking from contracts by the end of June, 1994. And, during the grace period, it began charging cities for the extra cost.

Because of pension spiking during the grace period, 94 agencies statewide owe $29.8 million to the system as of May 1.

Of those 94 agencies, Torrance owes the most--$4.23 million--records show. Redondo Beach ($1.05 million), Hawthorne ($824,548), Gardena ($258,953), El Segundo ($151,538) and Hermosa Beach ($15,935) are the other South Bay cities indebted to the system.

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The actual cost to cities, however, is expected to be greater than the figures indicate. That's because current balances reflect only the cost of employees who retired by May 1. The majority plan to do so in June. As more employees leave the cities, the balances will rise.

Redondo Beach, for example, said it expects to owe $2.2 million.

In Torrance, the number is harder to calculate. Officials don't know when or how many of the 92 safety workers eligible to retire with spiked pensions will do so.

Most cities force employees to retire after they convert leave time into cash. But in Torrance, police and fire employees have the option to retire months or years from now, with pensions spiked by cash received by June 30.

City officials said it is unlikely that all 92 will retire this year. And the longer employees wait, the less the city will owe in spiking costs. Promotions and other raises should eventually boost most of the salaries beyond their spiked levels, officials said.

The upshot for Torrance is that its liability could grow by as much as $14.5 million in the coming years--or by very little.

The bills for most cities will start coming due next year, officials said.

Payments to the retirement system will stretch over 10 to 30 years to ease the burden on local agencies. Reserves already paid into the system also will soften the blow in some cities.

But state and local officials said sizable amounts will come from city coffers.

Redondo Beach said it expects to pay $160,000 a year more to the retirement system through the year 2011. Hawthorne officials estimated the city will cough up $400,000 next year alone.

"Any time you take a $400,000 hit," Hawthorne Finance Director Tim Brown said, "I have to find $400,000 in services to cut."

Despite the expected rise in labor costs, some local officials said the departures will help to balance budgets.

The retirements offer an opportunity "to eliminate positions without laying people off," said Hawthorne's Gates. "It really gives us much more flexibility at a time when we need it."

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