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Public workers' perk hits taxpayers in 21 states
The practice, called buying "air
time," lets state, municipal and school employees pay to add up to five
years to their work history so they are eligible to retire and collect a
lifetime pension. Workers already eligible for retirement can buy extra years
to boost a pension by up to 25%.
It's called "air time" because
workers buy credit for non-existent work, in contrast to policies that let
workers buy credit for military service or government jobs in a different
state.
· STORY:
States try to
fix miscalculations over 'air time'
· STORY:
States expand
lucrative pensions to more jobs
· INTERACTIVE:
How state
lawmakers pump up pensions
Dan Pellissier, a
former adviser to California's previous governor, Republican Arnold
Schwarzenegger, paid $75,000 in 2004 for five years of work credit. When he
turns 55 in 2015, he will get a California
pension of $61,536 a year — nearly $13,000 more than if he hadn't bought air
time. That's $320,000 extra by the time he is 80.
"They give away the store here,"
says Pellissier, now president of California Pension Reform, which is pushing
to cut state retirement costs.
Air time is coming under scrutiny as states
try to curb retirement spending and make their pension systems resemble
private-sector plans. Federal law allows air-time purchases only in government
pension plans.
In California,
where 34,202 people have bought air time since 2005, Democratic Gov. Jerry Brown recently proposed barring the practice. Kentucky, New Hampshire and Texas stopped or restricted air-time
purchases after finding they weren't charging enough for the extra years, which
was costing taxpayers money.
Legislatures have allowed air-time
purchases as both a perk to workers and an inducement for early retirement.
Some states try to make air time cost-neutral to their retirement funds by
charging an up-front sum equal to a worker's projected extra lifetime pension
payments.
But nine states set the price in ways that
could cost taxpayers money. Michigan, Indiana, Montana
and Nevada
let workers buy air time years before they retire and pay a sum based on their
salary at the time. If a worker's salary is higher at retirement, his pension
will be based on the higher salary and the state may not have charged enough to
break even, says David Driscoll of pension adviser Buck Consultants.
A Montana
brochure urges workers to buy air time immediately, noting that "any delay
can increase the cost because of … higher salaries."
The New Hampshire Legislature
barred air time in 2007 after finding it was costing the retirement system $25
million to $40 million. "It allowed a lot of people to game the
system," says state Rep. Kenneth Hawkins. "That's part of the reason
we're $3.7 billion underfunded."
http://www.usatoday.com/news/nation/story/2011-12-27/pension-perk-costs/52247140/1