Early Retirement

Government money seems to bring out the worst in people.

State pensions are an example. Double-dipping is rampant. That’s where a retiree begins to collect a pension but holds onto the original job. Back-ending or padding is another strategy, where a worker’s final salary is so high that it skews the average. Before he resigned Rod Blagojevich appointed a legislator pal to a $120 thousand-a-year post that his buddy held for only 19 days. But because of the formula, the pension was boosted by $40 thousand per year.

In some places back ending is common. City council members earning token salaries can finish their careers big to qualify for a big payout. While technically legal, these workers didn’t adequately pay in to the system.

Then there’s tacking, as in stringing together multiple jobs to earn a full-time salary. Now, there’s nothing wrong with piecing together part-time work. But some hacks-er-workers have raised it to an art-form. One county official in pension-heaven New Jersey presided over court in eight towns at once, earning over 300-large.

Bridge-jobs are another game. Because many formulas factor in years of service, it’s critical to work continually—even if it’s only for 5,000 per year. This keeps a service streak alive and qualifies the worker for tens of thousands more in benefits. That’s why State capitals often crawl with part-time consultants.

State pensions are complex, and the benefits formulas are often arcane. But as states try to shore-up their finances, reforming this kind of fraud and abuse has to be high on the list.

Douglas R. Tengdin, CFA
Chief Investment Officer
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