PENSION MANIPULATION?--Retired LA schools chief Ramon Cortines received pension benefits totaling a remarkable $238,383.67 last year, possibly through a controversial pension-spiking practice known as “air time” – the purchase of credit for time not worked.
The tip-off: Cortines’ 2016 state retirement income was about 80% of his final annual salary, state records reviewed by California Policy Center show. But the CalSTRS contract covering California government workers like Cortines makes it difficult to collect much more than 60% of final salary – just based on time worked.
Cortines’ pension is unusually high for a non-safety retiree. In California, these “miscellaneous” employees generally receive a pension equal to 2% of final salary times number of years worked. CalPERS caps the number of years worked, or “service credits,” at 30. But CalSTRS has no such cap, and Cortines’s pension appears to reflect almost 40 years of service. Although Cortines worked in California public schools beginning in the 1960s, he has had a number of long breaks in service, including his time as New York City Schools Chancellor, in the Clinton Administration and as Los Angeles Deputy Mayor.
Did Cortines Benefit from “Air Time”?
California’s 2013 pension reform, called PEPRA, ended the purchase of air time, but that did not affect earlier purchases. And CalSTRS still allows employees to purchase service credits under specific circumstances. CalSTRS members can purchase credits for time spent working at educational institutions outside California, at the University of California, in the Peace Corps, in a Job Corps or for certain types of military service. Service credits may also be purchased for maternity or paternity leave, for family care and medical leave or for time spent on sabbatical.
These purchases are authorized under Section 415(n)3 of the Internal Revenue Code, which refers to the extra time as “permissive service credits.” These extra service years enter into the calculation of an employee’s retirement benefit.
Take the case of a 60-year-old CalSTRS member who taught in California schools for 25 years and has a final compensation of $100,000. She can retire on an annual pension of $50,000 plus cost-of-living adjustments. That’s 2% for each year of employment, or 2% x 25 = 50% of $100,000.
Now, let’s assume that she spent five years teaching out of state. Before retiring, she can purchase an additional five years of service credit for $159,000 – based on a service credit purchase rate of 31.8%. In exchange for that, she would receive an extra $10,000 each year (plus inflation adjustments) while in retirement.
If the retiree lives an average lifespan, this is a good deal but not an incredible one. In fact, the payout is similar to what one might obtain by purchasing an annuity on the private market from an insurance company. Using a free online annuity calculator, we find that the hypothetical 60-year-old female would get $8760 per year for life.
On the other hand, an employee can get a much more lucrative payout by purchasing permissive service credits before getting a major promotion. Consider a 56-year-old administrator making $150,000 per year. She is going to be appointed to a more senior role carrying a salary of $200,000 and will then retire at 60 with 25 years of service credit. In this case, the basic retirement will be $100,000 per year, but she can sweeten it to $120,000 per year with the service credit purchase. The extra credits cost 29% x 5 x $150,000 or $217,500 (the service credit purchase rate is slightly lower for a 56-year-old than a 60-year-old.) If the retired administrator lives to age 85, she will get a total of $500,000 in extra benefits – not including COLA – for a cost of $217,500. This is quite a generous return for a high-income retiree not in need of taxpayer assistance.
At this point, we don’t know whether Ramon Cortines spiked his annual pension benefits by purchasing permissive service credits or earlier forms of air time available prior to 2013. We have filed a Public Records Act request with CalSTRS to find out, and will update this post when we receive a response.
Conflict of Interest
Cortines served as LASUD Superintendent three times, most recently coming out of retirement in October 2014 to replace John Deasy, who had come under pressure to resign amidst criticism of his $1.3 billion plan to equip all district students, teachers and administrators with IPads.
At the time Cortines agreed to an annual salary of $300,000, which was $50,000 more than he had earned when he oversaw LAUSD earlier in the decade. But back then, Cortines supplemented his superintendent’s salary by serving on the board of Scholastic, Inc., a private company that sold reading programs to LAUSD middle and high schools.
The board gig paid Cortines an extra $150,000 on top of his LAUSD salary, but created an obvious conflict of interest. In February 2010, Cortines resigned from the Scholastic board after the LA Times reported that Scholastic had collected $5.2 million from LAUSD during the time that he was serving in senior roles for the school district.
Sexual Harassment Case
Cortines’ 2014 and 2015 tenure was marred by the reappearance of a sexual harassment complaint left over from his first stint in the superintendent’s role. Scot Graham, an LAUSD real estate manager, refiled a complaint against Cortines that the district had failed to settle. According to the complaint:
“Plaintiff start[ed] working for LAUSD in March of 2000, after being recruited through the direct efforts and at the personal request of Ramon Cortines, the LAUSD superintendent at that time. …Cortines did not require Mr. Graham to submit to any of the prerequisites of securing employment at the LAUSD, and violated a myriad of LAUSD policies to hire him. Plaintiff was never interviewed for the Director of Real Estate position he assumed at the outset of his employment….”
Just days after Mr. Graham was hired, Cortines invited him to dine at the Water Grill Restaurant in Downtown Los Angeles, for what Graham was led to believe was purely professional and work related activity. Plaintiff accepted Cortines’ invitation to drive them to the restaurant. Cortines paid for dinner and the two men returned to LAUSD headquarters. Upon their return, Cortines attempted to grab Scot’s penis and proposed that the two men go to the Superintendent’s office to have sex. When Graham refused, Cortines stated that it was the least he could do in exchange for the job that Cortines recruited him for. Graham again rebuffed Cortines’ offer, but Cortines insisted that the two men would go undetected if they entered the building at 450 N. Grand Avenue, and that it was harmless for them to have a “little fun.”
In March 2016 – shortly after Cortines’ re-re-retirement, LAUSD settled with Graham for $93,000. According to the Times, the district spent $266,000 litigating the sexual harassment complaint.
Of course, none of this was paid by Cortines. Instead, he is now receiving a $238,000+ annual pension for the rest of his life, a nice bump over the pension he was receiving before coming out of retirement.
(Marc Joffe is the Director of Policy Research at the California Policy Center. This article was provided CityWatch by CPC.) Prepped for CityWatch by Liknda Abrams.