Springfield got two good pieces of news from Office of Budget and Management Director Bill McCarty at last night’s city council meeting. The first was that a pension spiking loophole had been closed, and the second was the restoration of the Endowed Care fund at Oak Ridge Cemetery.
McCarty also announced that another form of pension spiking had been eliminated. Under previous administrations, workers could cash in their unused vacation time more than a year before they retired. This “spike” in income boosted their final compensation, and set an artificially high baseline for pension payouts.
Pension spiking is a huge problem for pensions because it disrupts the normal calculations of how pensions are balanced. A worker’s contributions are set based on salary. These contributions create the fund that will support the pension over time. With normal pay scales, it should be easy to predict how much a worker will be making at the end of his or her career, and the contributions can be set accordingly. But if their final pay is inflated, the pension fund will be under funded and the city will have to make more contributions to keep the fund solvent. McCarty also noted that if workers cashed out more than a year in advance, they could draw another year of vacation time to cash out again.
This issue was brought to during the previous administration when the Illinois Municipal Retirement Fund (IMRF) began billing the city up front for the increased pension costs. Before, the added costs of the spike were spread out over time, and were difficult to detect. Once the payments were spotted, McCarty and several aldermen pushed to have the rules changed to close the spiking loophole. McCarty blamed the problem on the law as written, and noted that this form of spiking was perfectly within the rules.
Now that the rules have been changed, the city is seeing significant savings on its pension costs. On average the city is saving over $1.3 million per year. This is the third spiking method that McCarty has worked to eliminate. You can see McCarty explain the loophole in the player.
Endowed Care Fund made whole
Oak Ridge Cemetery’s Endowed Care Fund has finally been restored. In the past, cemetery officials had borrowed from that fund to pay for expenses outside the fund’s intended target. Even after practice was stopped, the city still needed years to repay the borrowed funds. McCarty said that the fund has been made whole again, and can start contributing nearly $125,000 in dividends back to its intended use.