CalSTRS missed chances to catch pension spiking, state controller finds

California State Controller John Chiang
California State Controller John Chiang

CalSTRS missed opportunities to catch pension spiking and reduce unjustified or suspicious participant salary increases because it doesn’t audit the personnel records of most of the 1,900 school districts and governmental entities that belong to the retirement system, a report by State Controller John Chiang concluded.

The $152.1 billion California State Teachers’ Retirement System, West Sacramento, typically performs only around 40 audits a year, according to the report, released Wednesday.

In addition, the report found that CalSTRS failed to follow up when its system did detect possible cases of pension spiking, in which participants were given salary increases near retirement that increased their retirement compensation.

Since the controller’s review began in mid-2009, the pension fund launched a new unit designed to find pension spiking, the report said. But Mr. Chiang said additional staff members, beyond the nine current auditors, were needed to provide adequate oversight of reporting by school districts to CalSTRS.

The report evaluated pay increases in five agencies that were granted prior to retirement to determine whether they were adequately approved, justified and documented. For example, the review found San Francisco Unified School District gave one executive a 26% pay increase six months prior to retirement and another executive a 20% increase one year prior to retirement. The district was unable to provide any documentation supporting those raises, the review found.

Jacob Roper, a spokesman for Mr. Chiang said the full report will be presented to CalSTRS board’s risk and audit committee at 9 a.m. PDT Thursday.

CalSTRS CEO Jack Ehnes said in a statement: “CalSTRS takes pension spiking very seriously and places a high priority on improving processes to reduce the likelihood of pension abuse attempts.” He added: “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.”

CalSTRS spokesman Michael Sicilia said in an interview that CalSTRS began a ramped-up effort to find pension spiking in late 2011 when it formed the new unit. Mr. Sicilia said the unit has turned up 28 cases of pension spiking since then out of 270 cases it examined. He said the number of auditors in the unit will be increased by 66% over the next year or so.