Last month state Attorney General Andrew Cuomo announced that he was broadening his investigation into pension corruption.
Cuomo has spent the past several years investigating fraud and abuse in the pension system.
Now he’s looking into pension padding — the longstanding practice of using overtime to boost one’s salary before retirement. The pensions of public employees are based on the amount earned in their final three years of employment; workers can drive up their salaries by working overtime and thus collect larger pensions.
Most people agree that this practice is poor public policy.
But whether it’s illegal is another question entirely.
“It’s very common for employees on the eve of retirement to stock up on overtime,” said Lise Bang-Jensen, a senior policy analyst with the Empire Center for New York State Policy, a fiscally conservative think tank. “It’s legal under collective bargaining agreements. . . . I haven’t seen obvious examples of people breaking the law. They’re gaming the system.
“A lot of people who have studied this understand what the problem is and why we have a problem,” Bang-Jensen said. “Cuomo’s investigation is almost a sideshow. The solution is to change the pension system.”
At a news conference last week, Cuomo explained why he’s investigating pension padding.
“The cost of pensions is astronomical, rising at an astounding rate,” he said. “And at this rate, it’s going to be unaffordable for the state. We want to make sure that pensions are going to people who deserve the pension under appropriate circumstances and that everyone is living up to the law.”
Pension padding, Cuomo said, “is widespread across the state. However, it varies across the state. It’s very hot in some areas and it’s almost nonexistent in other areas. And that’s one of the issues we want to explore: Why is it more of a problem in some parts of the state, less of a problem in other parts of the state? What are the causes? Is it poor management oversight? Is it contracts and the way specific contracts are written? So we’re exploring all those different reasons and variations across the state.”
Since March, the attorney general has sent letters to 64 state agencies, authorities and local governments, seeking salary and overtime data for all employees who retired in 2009. The entities targeted by Cuomo have some of the highest proportions of pension costs in the state.
In the Capital Region, the city of Schenectady, the city of Cohoes and Saratoga County received letters from Cuomo’s office. Other recipients include the city of Binghamton, the city of Syracuse, Erie County, the New York State Department of Health, the New York State Power Authority, the New York State Teachers Retirement System and the Port Authority of New York and New Jersey.
“As the state and nation are gripped by the current economic crisis, we must make sure that taxpayers are not saddled with artificially inflated bills,” Cuomo said last month.
The New York State Common Retirement Fund, which funds the Employees’ Retirement System and the Police and Fire Retirement System, has assets of more than $129 billion. Pension payments to state-system retirees have increased from $3.5 billion in 1999 to more than $7.3 billion in 2009, according to Cuomo’s office. According to recent Census data, New York had an overall pension cost of $486 per resident in 2007, the highest in the nation.
Examples of padding
Cuomo’s office provided examples of inflated salaries that can lead to inflated pensions. These examples include:
* A water department worker who was paid more than $30,000 in overtime and extra pay in addition to his $40,000 salary, for a total of almost $74,000
* A county animal control officer who was paid more than $19,000 in overtime in addition to his $38,000 salary, for a total of more than $57,000
* A police officer whose base salary was $74,000 but earned $125,277 in overtime in his final year, for almost $200,000
Bang-Jensen said that pension padding is a problem because taxpayers wind up footing the bill for both the inflated salaries and the inflated pensions. One way to solve the problem, she said, would be to stop using overtime to calculate pensions; many union contracts, she noted, give overtime based on seniority.
Better management of overtime would also help, she said. “Overtime is sometimes necessary, but overtime should be well managed,” she said.
Susan Lerner, executive director of Common Cause/New York, a left-leaning advocacy group that supports grassroots activism and clean government, said she welcomed Cuomo’s investigation into pension padding.
“I don’t think [pension padding] is actually illegal, but I don’t know that it’s ethical,” she said. “It’s a problem that needs to be addressed. It’s not the intent of the pension system to provide a pension based on an artificially inflated last year. … The system needs to be examined, but it needs to be examined in the right context.”
The pension system, Lerner said, is a good thing; pension padding undermines the entire system by making taxpayers question whether their money is being well spent.
“Pensions are a social good,” she said. “You don’t want homeless people. You don’t want elders who can’t afford health care.” But if the system is abused, people will begin to think public employees are receiving unnecessary, expensive perks.
Stephen Madarasz, director of communications for CSEA, the New York union that represents state, county and municipal employees, said that CSEA supports Cuomo’s efforts to investigate pension corruption. “As far as we’re concerned, only people who are entitled to receive a pension should receive one,” he said. “Too many people are getting away with playing fast and loose. People shouldn’t be taking advantage and gaming the system. In the end, everyone loses.”
The average CSEA employee pension is $16,000, Madarasz said.
“When everybody thinks about all the fat cats who are cashing in, that’s not our membership,” Madarasz said. “They’re working and being rewarded. They’re not living in the lap of luxury as a result of their pensions. When you have abuses, it tends to be things like law firms and highly compensated political appointees. I don’t think we would take issue with anybody taking a good, hard look at the system.”
He noted that CSEA employees have caps on how much overtime they’re permitted to work.
On Thursday, Cuomo announced settlements with two investment firms and three unlicensed brokers as part of his ongoing pension system investigation. Two of the agreements are with investment firms — the Quadrangle Group and GKM — that paid fees to Henry Morris, political adviser to former state Comptroller Alan Hevesi, to arrange for investments from the New York State Common Retirement Fund.
So far, Cuomo has obtained six guilty pleas and 15 settlements worth approximately $130 million as a result of his pension probe. He has proposed a pension reform bill that would replace the sole trustee at the New York State Common Retirement Fund with a board of trustees and eliminate “pay to play” — the practice of paying money, usually in the form of campaign donations, for the privilege of engaging in certain activities — in state public pension funds.
Last year, the Legislature passed a pension reform bill that will, among other things, increase the minimum years of service required to draw a pension from five years to 10 years, and cap the amount of overtime that can be considered in the calculation of pension benefits for civilians at $15,000 per year, and for police and firefighters at 15 percent of non-overtime wages.