Blog entry Jack Ehnes

CalSTRS Takes Pension Abuse Seriously

As fiduciaries of retirement benefits for California’s 856,000 educators, CalSTRS takes its responsibility very seriously. As a public entity, transparency is critical. A significant part of this duty is the ability to appropriately address and improve business processes. A recent review by the State Controller was rightfully critical of CalSTRS history of addressing pension spiking, or the inappropriate enhancement of a member’s income to increase pension benefits.

It is important for the public to know, however, that the State Controller only reviewed CalSTRS spiking prevention efforts before June 2011. Since that time, and even before the Controller conducted a review, CalSTRS initiated aggressive changes and upgrades to curb pension spiking. This includes creating a special, dedicated compensation review unit to investigate suspected pension spiking and a toll-free Pension Abuse Reporting Hotline. The new unit is already achieving results.

Since its inception last fall, the unit has discovered 270 suspected instances of inappropriate benefit enhancement, investigated 175 of those cases and identified 28 potential instances of suspected spiking. Also, more than 75 tips were received though the toll-free Pension Abuse Reporting Hotline and online reporting forms.

We have not stopped there. Expansion of CalSTRS auditing unit, which is underway, enables us to collect better information from school districts. Receiving accurate compensation and service data from school employers is a critical component in CalSTRS ability to effectively confront spiking. Efforts started in 2008 to improve employer reporting accuracy have reduced data reporting discrepancies by 97 percent.

It is not financially feasible to ensure that all 1,600 California school districts will be individually audited. Nor is it a standard auditing practice. Instead a more cost-effective approach focuses on auditing school districts that generate the most risk, which CalSTRS does. Audits of these 60 high-risk districts will be completed by 2014. Lower-risk districts are also audited, but at a more appropriate frequency. A 66 percent increase in audit staff will further strengthen CalSTRS efforts.

Additionally, the recent passage of AB 340, the Public Employees’ Pension Reform Act of 2013, imposes strict limits and caps on earnings eligible for creditable compensation that figure into a member’s pension. Over the long term, this provides critical tools to curtail pension spiking, combined with the bill’s three-year final compensation average.

We are confident that with the valuable anti-spiking tools offered in AB 340, and our increased safeguards against pension spiking, CalSTRS will remain diligent in our efforts to crack down on those seeking unjust enrichment at the expense of educators and taxpayers.


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