USA Today has a package of stories on public pensions. Specifically, the stories explain how the purchase of “air time,” a method of pension spiking, contributes to pension funding problems.
In short, “air time” is credit for work not performed. Workers can pay for this extra service credit as a share of their current salary.
From USA Today:
“It’s been our experience that air time ends up costing the system money,” says Kentucky state Rep. Mike Cherry, who heads the House committee that oversees the state pension systems. The Legislature limited teachers hired after July 2008 to buying only 10 months and barred other workers hired after July 2002 from buying air time.
It’s a fairly obvious point. When workers buy air time, they do so because they perceive it to be a good deal. That means the cost they pay now is highly likely to pay big dividends down the road. Those dividends comes directly out of the assets of the retirement plan in question, be it Kentucky Retirement Systems, the Kentucky Teachers Retirement System or the Legislators Retirement System. If/when plan assets run out, that dividend will come directly from the pockets of taxpayers.
As of 2009, lawmakers could still purchase air time after having received 15 years of legitimate service credit already. Lawmakers already have a higher “multiplier” than state workers, meaning their pensions are based on a larger share of lawmakers’ salaries.
This might lead you to conclude that the real problem here is legislators’ pensions are more generous and should be curtailed. You would be mistaken. Lawmakers represent a very small share of the pension problem. The real problem is that contractual pension benefits are accrued with only limited regard to the eventual costs of those benefits. Lawmakers have spent decades sweetening the deal for state workers without almost zero regard to the future costs of those benefits.
If lawmakers were concerned about the costs of new benefits, they would have prefunded all new benefits or benefit sweeteners, including cost of living adjustments. As it stands, lawmakers typically find it too difficult to fund the pension plans to the level recommended by the government’s own paid actuaries.