Public Workers Pay to Add Work Time, Costing State Pensions
December 29, 2011
Government workers in 21 states are using an obscure perk to retire early or to boost their annual pensions by thousands of dollars, which can cost taxpayers millions more in payments to retirement funds, a USA Today analysis shows.
- 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 percent.
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.
- 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.
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.
Source: Thomas Frank, "Public Workers Pay to Add Work Time, Costing State Pensions," USA Today, December 28, 2011.
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