Pension spiking refers to the process of artificially inflating an employee's final average salary for the purpose of calculating a larger pension benefit. This form of salary inflation can be accomplished either through a reduction of the number of years used to calculate final average salary, or by granting large salary increases at the end of an employee's tenure in order to increase the FAS no matter how many years it factors.
Several states have passed laws making it more difficult for employees to spike their pensions.
|Arkansas Teachers Retirement System||Act 146, 2005||For benefit calculations, the salary used to calculate FAS cannot grow by more than 10% a year over the preceding year’s salary.|
|California Public Employees Retirement System||AB 340, 2012||Capped compensation earnable for the purpose of calculating pension benefits for new hires. Employees hired after 1/1/13 who participate in Social Security are capped at 100% of the SSDI contribution and benefit base; employees not participating in Social Security are capped at 120% of SSDI|
|Georgia Employees' Retirement System||Act 83, 2009||An employing unit shall pay the retirement system the actuarial cost of granting an employee a salary increase in excess of 5 percent during the 12 months before an employee's retirement and that the computation of a retirement benefit for persons who become members on or after July 1, 2009, shall not include a compensation increase in the last 12 months of employment which exceeds 5 percent.|
|Hawaii Employees' Retirement System||Act 153, Laws of 2012||Assesses the last employer for those employees who meet the criteria of high compensation levels due to overtime and other non-base pay increases (also known as “pension spiking”) in the last years of employment. The unfunded portion attributed to these significant non-base pay increases are required to be paid by the last employer by the next fiscal year after the employee retires.|
|Louisiana School Employees' Retirement System||Act 647, 2006||For the calculation of final average salary, the figure used for a 12-month period after the first 12-month period cannot increase by more than 10 percent from the previous period, except for legislatively-enacted increases.|
|Massachusetts State Employees' Retirement System||Chapter 176, Acts of 2011||For all who retire on or after April 2, 2012, new language includes an anti-spiking provision. FAS calculations cannot include amounts of compensation that exceed the average of the two preceding years by more than 10%, with exceptions allowed for a number of situations such as changes in position or number of hours worked.|
|Nevada Public Employees' Retirement System||Chapter 426, Laws of 2009||For those who join PERS after 1/1/2010, the calculation of average final compensation will exclude increases in compensation to 10% per year for the 60-month period that begins 24 months before the 36 months used in the calculation of final average compensation. Employees so limited are entitled to a prorated refund of their contributions to PERS for the appropriate period.|
|New York State & Local Retirement Systems||Chapter 18, Laws of 2012||Capped the total amount that can be included in final average salary|