CalSTRS Responds to State Controller’s Review Addressing Pension Spiking Controls and Processes
CalSTRS Responds to State Controller's Review Addressing Pension Spiking Controls and Processes

News release Michael Sicilia

WEST SACRAMENTO, CA – CalSTRS CEO Jack Ehnes issued a statement today in response to State Controller John Chiang’s “Pension Controls and Mechanisms” review addressing pension spiking:

“Last year, before the State Controller announced plans for his review, CalSTRS had identified the need to make aggressive changes and upgrades to mitigate pension spiking. This resulted in the creation of a toll-free Pension Abuse Reporting Hotline and a dedicated Compensation Review Unit to investigate suspected pension spiking cases.Although those efforts have achieved good results and strengthened our anti-spiking efforts, they are not reflected in the State Controller’s report as the report’s review time period stopped at June 30, 2011.”

“CalSTRS takes pension spiking very seriously and places a high priority on improving processes to reduce the likelihood of pension abuse attempts. CalSTRS agrees with the Controller’s recommendations and will take additional actions to further strengthen its controls. In fact, many of the recommendations in the report have been initiated within the last year.”

“Specifically, since December 2011, the CalSTRS Compensation Review Unit has identified 270 suspected instances of spiking, investigated 175 cases and confirmed 28 instances of inappropriate benefit enhancement. More than 75 tips were received through the toll-free Pension Abuse Reporting Hotline and online reporting forms. This tells us our efforts are having an impact on reducing spiking. Additionally, since last year CalSTRS:

  • Began conducting all school employer audits in-house to ensure a complete and thorough review.
  • Issued 38 employer audits, including the second largest district in the nation, Los Angeles Unified School District.
  • Added a second Audit Services unit in order to expand the school district auditing program.”

“Receiving accurate compensation and service data from school employers is a critical component in our ability to effectively and efficiently confront spiking. CalSTRS agrees that additional opportunities to improve transparency in school employer reporting currently exist. Additionally, the Legislature has taken steps to address pension spiking with the recent passage of AB 340, which imposes a limit on compensation that is counted toward calculating a member’s pension. The passage of AB 340 provides another valuable tool to further enhance CalSTRS existing safeguards to prevent pension spiking.”

“CalSTRS will continue to use our current spiking prevention processes and will take further actions to implement all of the Controller’s recommendations, including:

  • Increase Audit Services staff by 66 percent over the next two years to strengthen our review of audits.
  • Conduct audits of all of the 60 identified high-risk school employers within a two-year cycle by using increased staffing resources.
  • Intensify the focus on compensation reported by school employers.
  • Report ongoing progress of our efforts to the Teachers’ Retirement Board Audit and Risk Management Committee.”

“Although pension spiking can take many forms, it’s important to note inherent differences in the CalSTRS plan design that are intended to prevent instances of pension spiking. Specifically, compensation for the vast majority of CalSTRS members adheres to a strict salary schedule and established contracts that do not provide the opportunity for inappropriate benefit enhancement.”

“Additionally, CalSTRS restructured its plan design in 2002 to include a cash balance component where compensation earned from extra-duty assignments, summer school or other extra pay is not included in final compensation so it cannot be used in calculating a members’ defined benefit pension amount.”

“CalSTRS is focused on ensuring our members receive secure retirement incomes that appropriately reflect the service they provide to the state’s students. In instances where spiking has been determined, CalSTRS responds by reducing benefits to the appropriate level and collecting overpayments in a manner consistent with the law.”