Calendar year 2013 payroll data for the Kansas Turnpike Authority–just added to KansasOpenGov.org raises some questions about pension spiking—which is the artificial increasing of an employee’s Final Average Salary at retirement, thereby producing a higher pension. (Note: KTA is a government authority, but it is not part of the state budget and its employees are therefore not included in the state payroll listing.)
The data showed some unusually high compensation numbers for some employees, which was partly driven by large payouts of unused sick leave, vacation and other paid leave upon employees’ termination or retirement.
KTA explains that these payouts encompass unused vacation and paid time off (PTO) as well as 30% of banked sick leave for some retirees hired on or before a certain date. In addition, individuals can leave KTA for a variety of reasons apart from retirement (i.e. resignation or termination) and still be eligible for a payout of their unused leave. The extent to which this practice occurs across state agencies and local government is unknown, but it begs the question of how much this practice costs taxpayers.
Sick leave is a benefit to provide pay when an employee is ill; it is not an entitlement intended to boost pay and pension. Vacation leave exists to be used in the promotion and maintenance of employee health and well-being within a calendar year.
These payouts aren’t just made on a one-off basis; they have long-term budgetary impacts. This graphic highlights the compensation of now retired KTA President/CEO Michael L. Johnston to make this point.
Assuming Johnson was hired prior to 1993 and retired with 30 years of credited service, he had the option of having his pension benefits calculated based on either (1) the average of his last 3 years of base pay, excluding additional compensation or (2) the average of his last four years of total pay, including additional compensation (e.g. unused vacation and sick pay). Thus, his large payout of unused vacation and sick pay in 2013 made it so that his average total pay over the last four years qualified him for an annual pension payment of $219,119. This compares to the payment of $199,500 he would receive each year if his pension benefits were calculated instead based on his last three years of base pay only. (Note: Base pay for 2010 through 2012 are merely estimated for illustrative purposes.) The $19,600 difference between the two sums, if multiplied over the next 20 years, amounts to an additional $392,000 cost to the State of Kansas—all due to the way in which a single state entity handles unused vacation and sick pay.
If anything resembling this practice occurs beyond KTA and across the state, it is something that is worthy of examination as the Kansas State Legislature examines its funding to state entities and the true purposes for which that funding is intended and ought to be used.