CalSTRS: STUDY EXPOSES TEACHER PENSION SCAMS. State Controller finds teacher retirement fund lax on anti-spiking efforts

by JUDY LIN Associated Press, North County Times | http://bit.ly/P1o8N1

from the sco’s review: CalSTRS did not provide adequate oversight of the reporting entities it monitors. For example, at the rate at which audits currently are being performed, each district would be audited only once every 48 years. In addition, CalSTRS’ audit process should have been more effective in detecting pension spiking at its member school districts. CalSTRS missed opportunities to increase school district accountability by reducing instances of suspicious or unjustified salary increases (i.e., pension spiking). Our independent review of the San Francisco Unified School District and the San Diego Unified School District concluded that these districts lacked the level of transparency and the necessary controls over management pay increases that a public entity should exercise on behalf of its constituents. As a result, pension spiking may be occurring at these districts. CalSTRS did not review or verify the results of electronic edits it put in place to specifically identify potential pension spiking, except when there was an occasional inquiry from other CalSTRS divisions. CalSTRS could better analyze and use electronic information and coordinate its auditing efforts with its newly formed Compensation Review Unit so that audits are focused on higher-risk school districts.

September 05, 2012 7:00 pm  •  SACRAMENTO  ::   A new report released Wednesday by the state controller's office found that the nation's largest teacher pension fund has been so lax about detecting pension spiking at California school districts that it is on pace to audit each district once every 48 years.

The office found that the California State Teachers' Retirement System failed to adequately audit school districts, missed opportunities to stop unjustified salary increases, and failed to use its own electronic system to detect possible abuses.

Besides the slow pace of auditing 1,900 districts and offices, the report found in a sampling of districts that they often lacked transparency or documentation to justify pay increases.

For example, the San Francisco Unified School District wasn't able to explain why one executive received a 26 percent pay increase six months before retirement and another received a 20 percent increase a year before retirement. And officials at the San Diego Unified School District said supporting papers were missing from their files.

The pension fund also failed to review its own data that was designed to prevent pension spiking.

"Starting with more rigorous auditing and better use of existing technology, CalSTRS must fortify its ability and resolve to crack down on those seeking unjust enrichment at the expense of their fellow educators and taxpayers," Controller John Chiang said in announcing the results of the review.

CalSTRS' chief executive Jack Ehnes agreed that the $152 billion pension system should improve oversight and says the system is taking steps to improve pension calculations, including forming a special task force, forming a compensation review unit and setting up a toll-free hotline.

According to CalSTRS, the compensation review unit has identified 270 suspected instances of spiking, investigated 175 cases and confirmed 28 instances of inappropriate benefit enhancement. More than 75 tips have been received through the pension abuse reporting hotline.

"CalSTRS takes pension spiking very seriously and places a high priority on improving processes to reduce the likelihood of pension abuse attempts," Ehnes said in response to the report. "CalSTRS agrees with the controller's recommendations and will take additional actions to further strengthen its controls."

He said many of the report's recommendations have been adopted within the past year.

The pension fund includes more than 850,000 teachers, administrators and retirees, and currently has a long-term unfunded liability of $64.5 billion.

The review came just days after Democratic lawmakers passed a pension bill that included anti-spiking measures and a retirement cap for new employees. The Associated Press also reported this week that for nearly a decade, California's top-paid school administrators got to collect six-figure lump sum cash payments in addition to their pensions.

According to AP's analysis, approximately 180 participating retirees receiving $100,000 or more a year in pensions took home an average lump-sum payment of $147,000 in addition to a reduced pension when they retired between 2002 and 2010. The program was intended to help retain and recruit teachers during the dot-com boom.

California State Controller: CALIFORNIA STATE TEACHERS’ RETIREMENT SYSTEM | PENSION CONTROLS AND MECHANISMS