Late pay raises are one way to fatten workers’ state pensions

A three-part series by The Associated Press

o Today: Late pay raises mean jumps in pension benefits under some state-funded plans.

o Monday: Medical benefits tied to retirement system threaten local government finances.

o Tuesday: A look at government workers who retire on disability and then return to physically-demanding activities.

LAKEWOOD — By the end of 2009, three veteran managers at Lakewood Fire District 2 earned salaries that topped $175,000 annually — more than Seattle’s fire chief, who was overseeing a department roughly 10 times as large.

Their pay would soon grow even bigger, if only briefly.

Just four days before Michael McGovern and Greg Hull were set to retire, their annual salaries jumped by more than $17,000 each, in part due to a late contract addendum. Bob Bronoske got a similar increase just 13 weeks before he departed, putting each of their compensation rates around $200,000.

The last-minute pay raises cost taxpayers in the Tacoma suburb for only a brief time. In the long run, however, they may end up draining a state-run pension plan of $1 million or more, since the adjustments boosted each of the men’s lifetime retirement payments by about $1,000 per month.

Bronoske and McGovern retired in their mid-50s, and each is now drawing more than $150,000 in pension payments every year.

Hull’s pension is $184,000 annually. He has separately taken a job as the fire chief in the small city of DuPont — hired as a “contractor” in a way that doesn’t disrupt his retirement payments — bringing his current compensation to over $300,000.

Responding to AP’s findings, former State Auditor Brian Sonntag said local officials and retirees involved in the pre-retirement raises show a clear disregard for what is right.

“They’re thumbing their nose at colleagues — the people who follow the rules — as well as the public,” Sonntag said.

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Rules adopted by the Department of Retirement Systems are designed to prevent so-called “pension spiking” by prohibiting pay linked to retirement from being counted as pensionable salary. Local governments, however, have reported the late pay raises as being part of normal compensation.

While Hull said in an interview that his final salary bump wasn’t designed to inflate his pension, emails show part of the Lakewood raises were developed over the span of several weeks, with retirement in mind. The men were already slated to get a salary bump at the beginning of 2010 but that was pushed even higher by an addendum approved in November 2009.

Then-Fire Chief Ken Sharp and finance director Koree Wick said in interviews that the late raises were designed to build incentives to retire by augmenting pension values. They said the local fire officials were having budget troubles and were interested in some staff retirements to help with a potential merger with a nearby fire district.

The pensioners who received the late raises were all part of LEOFF-1, short for the Law Enforcement Officers’ and Fire Fighters’ Retirement System Plan 1. About 1,000 veteran public servants have retired into the LEOFF-1 system over the past decade, leaving only about 200 active workers remaining.

Pension values for most Washington government employees — who work under more than a dozen different retirement plans — are based on a snapshot of their salaries over a long period of time, such as a five-year window for many teachers. But workers hired into the LEOFF-1 system before October 1977 have benefited from unique provisions in their plan, which typically calculates pension values based largely on the final paycheck they earned.

States around the country have dealt with pension-spiking problems even when retirement values are based on earnings over the span of 12 months, said Jun Peng, an associate professor at the University of Arizona who has studied pension systems in several U.S. states. He said the idea that a Washington pension program would allow pension values to be determined by a final paycheck was “scary.”

In other cases, officials used carefully crafted contracts and let workers decide whether they wanted to retire when temporary raises were in effect.

Over in Bremerton, a contract clause brokered between city officials and the local firefighters’ union in 2009 provided a temporary pay increase of 12 percent to a remarkably narrow group: lieutenants and captains in the LEOFF-1 system who had served 30 years and one month with the department. The unusual pay increase, according to the negotiated contract, lasted only 30 days.

During that month, three workers retired with salaries that were each roughly $1,000 a month larger than they were just weeks prior.

Bremerton Fire Chief Al Duke said in an interview that the city was hoping to encourage some retirements in order to save on salaries and bring in younger workers who don’t cost as much. He said officials told the LEOFF-1 retirees that it was a one-time deal that they could take but that it wouldn’t be offered again.

“We were actually saving quite a bit of money,” Duke said.

The raises for those three workers now cost the state pension system about $30,000 extra per year.

Across the Puget Sound, officials in Renton also cited the budget in an even broader effort that boosted pensions.

A contract clause implemented in 2008 gave veteran fire officials a 22 percent “longevity” supplement for serving more than 27 years in the department. Fire workers in Renton typically received only a 12 percent supplement after serving 25 years. The extra benefit, which prompted eight people to retire, was negotiated only for the 2008 calendar year and has not been renewed.

Lee Wheeler, who was fire chief at the time, said the city was looking to shed older staffers and replace them with younger workers who would be lower on the salary scale.

After state retirement officials questioned whether the money was designed as a retirement incentive package, the district denied that intention and then adopted a resolution making the new salary permanent, even for the incoming chief. That placated the concerns of retirement officials, who saw the raise as simply a readjustment of how the chief’s position was compensated in general.

Meeting minutes obtained by AP, however, say the board of fire commissioners had offered him a “severance package” that he was accepting.

In 2010, the district eliminated the fire chief position — and the salary — altogether.

Sonntag, who was state auditor at the time the assessments took place, said he believes officials involved in both cases were participating in a concerted effort to egregiously abuse the system.

“How does that pass anyone’s common-sense test?” Sonntag asked.