Legal Brawl Brewing Over Pension Spiking : Government: Huntington Beach and the state are at odds over the city’s decision to allow $13 million in extra benefits.

SACRAMENTO —  The Huntington Beach City Council appears headed for a legal clash with the state over a recent city decision to allow employees to continue artificially inflating their retirement benefits, a practice expected to ultimately cost taxpayers $13 million.

The council voted Tuesday not to restrict “spiking” of final-year salaries, which boosts pensions, despite a new state law that makes most aspects of that tactic illegal. Council members, although nearly unanimously opposed to spiking, argued that the city is in a legal bind because the practice is written into contracts previously bargained with several municipal employee unions.

Such reasoning doesn’t sit well with an official from the state agency that oversees public employee pension funds, who suggested Wednesday that the new anti-spiking law supersedes any union agreements.

“You can’t break a state law no matter what’s been bargained in a contract,” said Bob Walton, assistant executive officer at the state Public Employees Retirement System (PERS). “It would be like having a contract saying all employees can drive 65 m.p.h., then insisting they can continue to drive 65 m.p.h. even after state law reduces the speed limit to 55 m.p.h.”

Last month, the council voted not to pay a $743,632 bill from the state for city employee pensions inflated through spiking. In a letter to PERS, the city argued that it is not obligated to pay the bill, Councilman Dave Sullivan said. The city gave PERS a July 22 deadline to say whether it would demand the payment.

“It seems to me that if they can agree with us, it would mean we’re out from under paying this bill or any future bill,” Sullivan said.

Walton acknowledged that PERS “had some fault in not educating people as well as we should have” on the complexities of the state’s retirement system. But that, he said, does not dismiss the city from its obligation to make up the money owed or risk being tossed out of the state pension system.

“If we’re unsuccessful in collecting from an employer, then the board’s option is to terminate the employer’s contract with PERS,” Walton said. “That’s something no one likes to do. But we can’t administer a retirement system without proper employee contributions.”

Given the differing interpretations, it may be left up to the courts to decide who will foot the bill for spiking, which has become an emotion-charged issue in scores of cities and counties up and down the state. In some municipalities, administrators ended up getting retirement checks bigger than their top salaries.

Spiking occurs when employee pensions are artificially inflated by adding the value of unused vacation days, car allowances and other perks to the final year’s salary, which is used by PERS to determine retirement pay.

Such inflated pensions strain the state retirement fund. Normally, pensions are financed by a pool of money contributed by both the employee and the employer. Spiked pensions, however, balloon beyond an amount that can be paid off by the contributions.

The practice began in the early 1980s as elected officials sought ways to compensate employees whose wages began to fall behind private-sector salaries.

Spiking took hold in Huntington Beach about a decade ago. Officials say it began with top city administrators, then trickled down to other employees, including public-safety personnel.

“I think it was a slippery move by the then-city administrator, and over a period of time other employees got wind of it and wanted to be included on the gravy train,” said Sullivan, a spiking opponent.

Now he and other Huntington Beach officials believe they would face lawsuits from employee groups if they attempted to ignore bargaining agreements that allow spiking to occur.

“If two parties agree to terms, neither side can unilaterally violate those terms,” Sullivan said. “The whole council really wants to stop this, and the council’s action was no way an endorsement to spiking. It was obeying the law and not violating the collective bargaining act.”

Moreover, the city would have borne the cost of defending any lawsuits filed against the city by the labor groups, he said. Reasoned Sullivan: “Why incur more costs that are avoidable?”

The total price tag for pension-spiking in Huntington Beach is expected to reach $13 million. About $3 million represents unfunded pensions for 39 city employees who have already retired. Another $10 million would go to 153 employees who have said they plan to soon retire with inflated pensions.