A special way of inflating public-sector pensions was dealt a blow in Arizona on Friday when a county judge ruled against the Phoenix city government, pension boards, and local police union attempting to defend a likely illegal method of calculating employee pensions.
The practice, “pension spiking,” usually refers to public employees’ cashing in benefits such as sick leave, vacation time, and bonuses in particular years to inflate the salaries used in calculating their pensions. Arizona state law bans the practice, restricting pension calculations to essentially salaries alone, but the Goldwater Institute filed suit last fall alleging that the City of Phoenix has ignored state laws and let the practice continue, costing taxpayers millions of dollars.
On Friday, a judge in the Maricopa County Superior Court ruled against the defendants’ attempt to dismiss the case, issuing a stay to allow the local pension board (one of the four defendants) time to address its failings. If the board doesn’t do so by February 21, the court will reconvene. Jon Riches, a Goldwater Institute attorney, says that the taxpayers will be off the hook if the defendants resolve the issue, but if the case returns to court, the Institute should prevail.
Required contributions to public-pension funds have skyrocketed in Phoenix in recent years, going from $7.2 million in 2003 to $130 million in 2014, according to the Goldwater Institute.
“The state law is pretty clear that the payments we’re challenging — vacation time, sick leave, fringe benefits — should not be in included in pensionable pay,” Riches tells NRO. The institute points out that the city even apparently includes uniform allowances as part of officers’ salaries that count toward their pensions (public-employee pensions are typically some percentage of the employee’s highest salary). Riches concludes: “Basically the court told the defendant that they need to fix this or else the court is going to have to get involved. The law is obviously against this pension spiking.”