Pension of Spiking ‘Poster Child’ Cut After Review

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Calpensions.com.

A Moraga-Orinda fire chief drew national attention six years ago for retiring at age 50 with a pension much larger than his base pay. He went back to work as chief the following Monday, hired as a consultant with full salary.

“People point to me as a poster child for pension spiking, but I did not negotiate these rules,” Peter Nowicki told the Wall Street Journal.

Last week, the Contra Costa County pension board, following a review by its law firm, voted to reduce Nowicki’s initial pension, $240,923, to an amount, $172,818, that is below his final base pay, $193,281 — a cut of $68,105 or 28 percent.

The board also voted to recover a $617,458 pension overpayment to Nowicki during the last six years, including cost-of-living adjustments and interest. An actuarial estimate of the future pension system savings from the pension cut is $1,289,331.

The review found that Nowicki, with two amendments to his contract, inflated or “spiked” the final pay used to calculate his pension, mainly by cashing out unused vacation time with smaller amounts from holiday, terminal and retroactive base pay.

Pay deals were negotiated behind closed doors and benefits were retroactive, the review said, raising questions about legality. But the board acted under a state law authorizing pension cuts when an employee improperly increases final pay.

“It seemed to us that under the circumstances presented to this board that constituted improper behavior,” said Harvey Leiderman, the board’s attorney. “I’m not calling it illegal behavior. But I’m saying it is improper behavior, in our opinion.”

The review was prompted by anti-spiking bills that became part of broad pension reform legislation three years ago. Reports by the Contra Costa Times of Nowicki’s pension and similar pensions in the San Ramon fire district were cited.

Nowicki told the board last week that when he became chief in 2006, he had a “gentlemen’s agreement” with the former fire chief and a board director that he would be “made whole” later, rather than get annual pay raises like his predecessor.

His pension was little more than he would have received by remaining a battalion chief, Nowicki said, and lacking an assistant he was usually unable to take time off. A rare vacation was marred by the need to write a response to a consolidation proposal.

A skeptical pension board mentioned the lack of a written agreement, “self-dealing,” and email that undermined Nowicki’s statement that he had not yet decided to retire when obtaining the second contract amendment enabling a large vacation cash out.

“I think the fact that the employer (Moraga-Orinda fire district) isn’t here today speaks volumes,” said board member Scott Gordon. “I think the fact that Meyers-Nave (Moraga-Orinda legal counsel) isn’t here today speaks volumes.”

An email that Nowicki sent to fire department employees announcing his retirement (three days after approval of the second contract amendment) refers to a pension formula, “3 at 50,” that some say is too costly and may be “unsustainable.”

The formula was negotiated by the Highway Patrol union and placed in CalPERS-sponsored legislation, SB 400 in 1999, that gave state workers a large retroactive pension increase.

Under the Highway Patrol formula, the pension is 3 percent of final pay for each year worked at age 50, a big increase from the previous “2 at 50” formula. The “3 at 50” formula has since been widely adopted by local police and firefighters.

“As you are all aware, the 3 percent at 50 retirement system very much dictates when an employee will discontinue employment,” Nowicki said in an email dated Dec.13, 2008. “The decision is predominantly based upon a fiscal plateau, at which point the employee then loses income by coming to work.

“I’m very fortunate to be a part of such a lucrative system, yet I philosophically find it to be very troubling at the same time. The ability to retire at the age of 50 is certainly a nice option, but I do not believe that workers should be ‘put to pasture’ due simply to a lack of any other viable alternative.

“That concept is akin to the government paying farmers not to grow crops — I never understood that practice either. Nonetheless, I’ve reached that financial plateau and it’s no longer economically feasible to continue in my current capacity.

“For that reason, my retirement will become effective on January 30, 2009. But before everyone starts to help me pack and shows me the on-ramp to the freeway … my retirement will be in ‘status’ only.

“The Board of Directors and myself have been entertaining discussions on my continued service to the District as a contract employee. Should that come to fruition, it would be nothing more than a ‘paper conversion’ and a seamless transition to a new classification.

“So, in essence, this message is most likely much ado about nothing. I’ll keep you informed as this matter evolves.”

Nowicki’s email (review, exhibit 16) did not say that he had taken unusual steps three days earlier to boost his pension well above his base pay. Nor did it mention that he had not worked long enough to maximize his pension under the “3 at 50” formula.

He was credited with 28.3 years of service, giving him 85 percent of final pay. If he had worked less than two more years he would have had 30 years of service, reaching the cap of 90 percent of final pay under the “3 at 50” formula.

At the Contra Costa County Employees Retirement Association board hearing last week, Nowicki said he was told at the pension system’s retirement workshops he could make full use of allowed pension enhancements, including cashing out vacation time.

“My counselor, Marge Rosenberg, sat with me in this building and twice went over the numbers with me and congratulated me on what a well-deserved job, or well-deserved method, of making it through my career and having this final outcome in my retirement,” he said.

Nowicki said it was from Rosenberg that he first learned he could return to his job after retiring and receiving a pension. “Double-dippers” or “retired annuitants” can cut employer costs because they do not earn additional retirement benefits.

“I made my life decisions based on what I was told my retirement was going to be,” Nowicki said. “And again, the Reed document (Reed Smith law firm) condemns me for having used what calculations were put on a piece of paper and given to me.”

Contra Costa is one of 20 county retirement systems operating under a 1937 act. Spiking is a particular issue for them because of a 1997 state Supreme Court ruling in a Ventura case expanding pensionable pay to vacation time and dozens of other items.

In 1993 the giant California Public Employees Retirement System had sponsored anti-spiking legislation for its members, SB 53, that limits the use of supplemental pay and created a screening unit.

But similar legislation in 1994 for the 20 county systems, SB 2003, failed to pass.