How Government Workers Are Gaming Their Pensions for 6-Figure Annual Payouts

If a retired professor paid in about $750,000 in taxes, he would receive $19 million in public pensions. This isn’t a lottery win; it’s the result of a broken system. Some government workers use legal loopholes and clever tricks to secure six-figure annual payouts for life.

This report uncovers the three main tactics: pension spiking with last-minute overtime. Double-dipping by getting rehired after retiring, and maximizing benefits within the rules.

These strategies create a massive bill that taxpayers are left to pay. Revealing a system that is fundamentally flawed and in desperate need of a fix.

The Six-Figure Promise and the Taxpayer’s Price Tag

Imagine getting a government pension of over half a million dollars a year. That’s what happened with Leslie Heffez, a former professor and surgeon at the University of Illinois at Chicago. When he retired, he was locked in a public pension of $547,862 per year. If he lives to an average age, he could collect over $19 million in total. He only paid $768,610 into the system.

Are these giant pensions a fair reward for a long career, or are they the result of loopholes and tricks? This report looks into how public pensions can be inflated to six-figure payouts. This isn’t about attacking public workers, because most get normal benefits. It’s about looking at the rules that allow these huge payouts to happen.

To show you how it’s done, we will break down the main ways pensions get inflated. We will look at three key methods:

1. Pension Spiking: How workers pump up their final salary with things like overtime and last-minute promotions to get a bigger pension for life.
2. Double-Dipping: The “retire-rehire” game where people collect a pension and a government salary at the same time.
3. Playing by the Rules: A look at the legal tricks, like cashing in sick leave, that smart employees use to boost their retirement checks.

While some people take advantage of these loopholes, the real problem is bigger. The pension system itself is broken. It’s built on bad math, poor oversight, and politics that favor short-term promises over long-term stability. The result is a system where the promises made to public workers are becoming a massive bill for taxpayers.

How a Public Pension Works — The Formula for a Fortune

To see how people game their pensions, you first need to know how a pension is calculated. Most government pensions are not like a 401(k) in the private sector. A 401(k) depends on how much you save and how the market performs. A public pension is a “defined-benefit” plan. It promises you a set amount of money for life, based on a formula. That formula is the key to how the system works—and how it can be exploited.

The basic math is the same almost everywhere:

$$\text{Annual Pension} = (\text{High-3 Average Salary}) \times (\text{Years of Service}) \times (\text{Pension Multiplier})$$

Each part of this formula is important.

• Years of Service: This is simply how long you’ve worked for the government. It’s hard to change this number.
• Pension Multiplier: This is a percentage set by law, usually between 1% and 3%. If your multiplier is 2% and you work for 30 years, your pension will be 60% of your final average salary. You can’t change this number either.
• High-3 Average Salary: This is the most important and flexible part of the formula. It’s the average of your highest salary over three straight years. This is almost always your last three years of work, when you’re earning the most.

This formula was designed to reward you based on your highest earnings. But it also creates a big problem. A dollar you earn in your last three years is worth much more to your pension than a dollar you earned earlier in your career. This is very different from a 401(k), where every dollar you save has the same chance to grow.

Because of this, anyone who wants to get the biggest pension possible will focus on boosting their salary in that final three-year window. The system was meant to reward a successful career. But it accidentally created a target for people to inflate their pay. This weak spot is the common thread in the biggest pension-gaming cases across the country.

Pension Spiking — How to Inflate Your Final Paycheck

Pension spiking is the main way people cheat the system. It means pumping up your pay right before you retire to get a bigger pension for life. It targets the most flexible part of the pension formula: your final salary. This can range from using legal contract perks to outright fraud. Here are the main ways it’s done.

The Overtime Windfall

For many government workers, like police and firefighters, overtime is normal. But when overtime pay is counted toward your pension, it becomes a powerful tool. In their final years, employees can rack up huge amounts of overtime to boost their “high-3” salary.

This is often legal. The system actually encourages employees to do it. One expert said that if your pension counts overtime, you’d be “either lazy or crazy not to spike your pension as much as possible.” The problem often comes from union contracts that create a need for overtime. Which workers nearing retirement can easily claim. The results can be shocking. One Washington State Patrol Lieutenant boosted his final salary by 79% using overtime. This trick nearly doubled his lifetime pension, creating a huge debt that was never paid for by his contributions.

The Leave Payout Gambit

Another popular trick is cashing out unused leave when you retire. In many government jobs, you can get a lump-sum payment for unused vacation time. Some places even let you cash out sick leave. When this payment is counted as salary in your final year, it can give your “high-3” average a big boost.

The effect is immediate and permanent. In Washington State, an employee who would get a $3,000 monthly pension could add an $8,000 leave cash-out to their final salary. This would raise their monthly pension to $3,200. That extra $200 a month, created by a one-time payment, lasts for the rest of their life.

Some states have tried to stop this. Washington, for example, now calls annual leave cash-outs over 240 hours “excess compensation.” When this happens, the state sends a bill to the local government for the extra cost of the bigger pension. This shows that states know there’s a problem, but it’s hard to fix. Many local governments just paid the bills instead of changing their rules.

Last-Minute Promotions and Pay Bumps

A quieter but still effective trick is when employees get big promotions or pay raises right before they retire. A late-career promotion isn’t always wrong. But it looks suspicious when the pay raise is huge or seems designed just to boost a pension.

This points to a flaw in how government is run. The public elects officials, who hire managers to run agencies. These managers set the pay for employees. But if the managers can also get big pensions, they have a conflict of interest. They might approve big raises for their staff, knowing they might get the same treatment one day. The taxpayer ends up paying for it all. This creates a culture where spiking is quietly encouraged.

Case Studies in Spiking — From Loopholes to Fraud

The line between using a loophole and committing fraud can be thin. Here are some recent examples.

Case Study 1 (Systemic Abuse): The North Carolina School Boards

Recent court cases in North Carolina show how tricky it is to stop spiking. In June 2024, school boards in Harnett and Wilson counties were found responsible for pension spiking. They had given retiring employees big pay raises in their contracts. The contracts were legal at the time. But a 2014 state law was passed to stop spiking. The state retirement system said these raises created a debt. The Wilson County school system was billed for over $400,000, and Harnett County for $198,000, to cover the future cost of these bigger pensions. The school boards fought back, but the courts sided with the state. This case shows how hard it is to define what is “abuse” after the fact.

Case Study 2 (Egregious Fraud): The Broadmoor, California Police Department

An audit of the small Broadmoor Police Department in California found a clear case of illegal spiking. The audit found that three police chiefs and a commander were “unlawfully employed” and were cheating the pension system. They were getting a full-time salary while also drawing retirement benefits. They also took large, unexplained payments and committed disability fraud. In one case, a police chief retired and was rehired for one year. His annual pension jumped from $93,000 to $152,000 because of his inflated salary during that single year. This extra $59,000 a year was never paid for, creating a pure debt for the pension system.

The impact of these actions is serious. Spiking doesn’t just give a retiree a bigger pension; it creates a long-term debt that taxpayers must pay. The table below shows the debt created by different levels of spiking for a typical public safety worker.

Employee Type	Baseline Final Salary	Spiking %	Spiked Final Avg. Salary	Years of Service	Pension Multiplier	Annual Pension	Required Fund at Retirement	Unfunded Liability Created by Spike
Public Safety	$120,000	0%	$120,000	30	3.0%	$108,000	$1,300,000	$0
Public Safety	$120,000	10%	$132,000	30	3.0%	$118,800	$1,430,000	$130,000
Public Safety	$120,000	20%	$144,000	30	3.0%	$129,600	$1,560,000	$260,000
Public Safety	$120,000	30%	$156,000	30	3.0%	$140,400	$1,690,000	$390,000

As you can see, a 30% spike in final salary creates a debt of $390,000. To have properly paid for this benefit, an extra 8% of the employee’s salary would have needed to be saved every year for their entire 30-year career. When that doesn’t happen, the $390,000 becomes a debt the pension system owes.

The “Retire-Rehire” Loophole — How Double-Dipping Works

Another way the system is gamed is called “double-dipping.” This is when someone retires, starts collecting a pension, and then gets rehired by the government. This lets them collect both a pension and a salary from public funds at the same time. This “retire-rehire” game uses legal loopholes and makes people ask what a pension is really for.

People who support it say it’s a smart move. They argue that rehiring experienced retirees is a cheap way to keep valuable knowledge without having to train new people. In jobs with worker shortages, bringing back a trusted former employee can seem like a good idea.

But others say it defeats the purpose of a pension. A pension is supposed to support people who have stopped working. Not give extra income to those who are still on the public payroll. They argue it puts a strain on pension funds, which have to start paying benefits years earlier than expected. It can also block jobs and promotions for younger workers.

The rules on double-dipping are different everywhere. In Ohio, for example, it’s mostly legal. The only real penalty is if you get rehired less than two months after you retire. In that case, you lose a month or two of pension payments, which is not much of a deterrent. This shows a big difference between what the public thinks is an abuse and what the law allows.

Case Study in Double-Dipping: The Tennessee Time Thief

While many cases of double-dipping are legal, some are clear fraud. A 2024 case in Tennessee is a great example. Jeffery Wadding, a collections officer for the Tennessee Department of Revenue, was allowed to work from home. An investigation found that he was also working a second job at a car dealership while he was on the clock for the state.

Investigators compared his state timesheets with records from the dealership. They found he claimed to be working at both jobs at the same time on 287 different days. He was getting paid twice for the same hours. He improperly received at least $34,131 in public money. He was fired and charged with theft and other crimes. This is the worst kind of double-dipping, where someone fraudulently claims to be working two jobs at once.

The Federal Angle: GPO, WEP, and the Social Security Fairness Act

At the federal level, a type of double-dipping has been debated for years. It involves people who get both a government pension and Social Security benefits from another job. To stop what some saw as an unfair advantage, Congress passed two rules. The Government Pension Offset (GPO) and the Windfall Elimination Provision (WEP).

The GPO lowered the Social Security spousal benefits for people who also got a government pension. The cut was big: two-thirds of the government pension was subtracted from their Social Security check. The WEP did something similar for the worker’s own Social Security benefits. These rules were meant to make things fairer for private-sector workers.

But things have changed. The Social Security Fairness Act, signed into law on January 5, 2025, got rid of both the GPO and the WEP. This change started with benefits paid in January 2024. By July 2025, the government had sent over 3.1 million payments totaling $17 billion to people affected by the change. This means many government retirees will now get their full Social Security benefits on top of their pensions. While public employee groups see this as a win, it will cost the federal government a lot more money. It could also make it more tempting for people to retire and then take a second job.

The “Quiet” Boosters — Getting More Money Within the Rules

Not all pension-boosting tricks are illegal. Some are perfectly legal ways to get more money by using the system’s own rules. These “quiet boosters” aren’t abuse like spiking, but they show a problem with how pensions are designed. The rules need to be fair to workers but also strong enough to stop people from taking advantage of them.

Sick Leave as Service Credit — The Best Severance Package

One of the most powerful but least-known pension boosters is turning unused sick leave into service credit. In many government jobs, you don’t get cash for your unused sick leave when you retire. Instead, the time is added to your “years of service” in the pension formula. This is a huge benefit because it permanently increases your pension payments for the rest of your life.

The government considers a full work year to be 2,087 hours. One month of service credit is equal to 174 hours of unused sick leave. So, if you retire with 2,087 hours of unused sick leave, you get credit for a whole extra year of service.

This has a big impact on your money. For a federal FERS employee with a “high-3” salary of $100,000, one extra year of service from sick leave adds $1,100 to their annual pension. This extra money is paid every year for life and goes up with cost-of-living adjustments. This gives employees a strong reason to save their sick leave. Using a sick day gives you a day off now, but saving it gives you more money in retirement forever.

It’s important to know that you can’t use sick leave to become eligible to retire. You have to qualify for retirement with your actual years of work first. Then, the sick leave credit is added to make your pension bigger. The table below shows how much this “quiet booster” can be worth over a lifetime for federal employees.

Retirement System	Unused Sick Leave Hours	Equivalent Months of Service	Equivalent Years of Service	High-3 Salary	Annual Pension Increase	Total Lifetime Value (25-year expectancy)
FERS (1.1% multiplier)	522	3	0.25	$100,000	$275	$6,875
FERS (1.1% multiplier)	1,044	6	0.50	$100,000	$550	$13,750
FERS (1.1% multiplier)	2,087	12	1.00	$100,000	$1,100	$27,500
CSRS (2.0% multiplier)	522	3	0.25	$100,000	$500	$12,500
CSRS (2.0% multiplier)	1,044	6	0.50	$100,000	$1,000	$25,000
CSRS (2.0% multiplier)	2,087	12	1.00	$100,000	$2,000	$50,000

Timing is Everything — Smart Retirement and Pay Raises

Another key way to get a bigger pension is to time your retirement perfectly. Because your “high-3” average salary is so important, you can delay your retirement by a few months to make sure a pay raise is fully counted.

The 2025 federal pay raise is a good example. It was about a 2.0% increase. For a federal worker close to retirement. Making sure this higher salary is part of their “high-3” calculation can lead to a bigger pension for life. A financial advisor might tell them to wait a few months to retire to lock in the full benefit of the raise.

This smart timing also affects future Cost-of-Living Adjustments (COLAs). COLAs are added to your pension each year to keep up with inflation. They are calculated as a percentage of your starting pension. So, a bigger starting pension means bigger COLA increases for the rest of your life.

The value of COLAs can be a hot topic. There’s a big difference between the two main federal retirement systems. CSRS retirees get the full COLA that Social Security recipients get. In 2026, that was a 2.8% increase. But FERS retirees have a different formula. When the COLA is between 2% and 3%, FERS retirees get a flat 2%. If it’s 3% or higher, they get the full amount minus one percent. So in 2026, FERS retirees only got a 2.0% adjustment.

The Systemic Crisis — Why the Game Can Be Played

Why does this keep happening? It’s not just a few bad apples. The whole system is set up in a way that makes it easy to game. The tricks we’ve talked about are signs of a much bigger problem. This problem comes from decades of bad math, poor leadership, and political games. These failures have created a system where pension gaming is not only possible but makes sense for some people.

Bad Math — The Underfunding Crisis

The biggest problem with public pensions is the gap between the promises made and the money saved to pay for them. This gap comes from using financial predictions that are too optimistic. The most important one is the Assumed Rate of Return (ARR). This is the investment return a pension fund expects to earn on its money. A higher ARR makes future pension payments look smaller, so governments can contribute less money today.

For years, public pension funds have used ARRs that were too high. From 2001 to 2023, the average assumed return was 7.59%, but the actual average return was only 6.5%. This has allowed governments to underfund their pensions, creating a massive debt. As of 2023, this public pension debt was $1.6 trillion.

But some experts say the real problem is much worse. Stanford researcher Joshua Rauh says the whole accounting method is wrong. He calls it a “total mismatch” of “risky assets backing up risk-free liabilities.” A pension is a guaranteed, risk-free promise. But it’s being paid for with money invested in the risky stock market. Proper financial practice would be to use a risk-free interest rate, like a U.S. Treasury bond, to value these promises. Using this stricter method, Rauh estimates the real national pension debt is closer to $5.1 trillion.

This huge debt means there’s no room for error. When pension spiking or other tricks happen, there’s no extra money to cover the costs. The new debt is just added to the giant pile that future taxpayers will have to pay, either through higher taxes or cuts to public services.

A Failure of Leadership and Oversight

The bad math isn’t an accident. It’s the result of failures in leadership. The RAND Corporation found six common reasons why public pensions get into trouble:

1. Inaccurate Assumptions: Using overly optimistic predictions about investment returns leads to not saving enough money.
2. Restrictive Rules: Many states have laws that make it impossible to reduce benefits for current workers, even if they are unaffordable.
3. Poor Governance: Pension boards are often not transparent or accountable.
4. Lack of Expertise: Pension board members often don’t have the financial knowledge to make good decisions.
5. Political Fights: Disagreements between politicians can stop needed reforms from happening.
6. Conflicting Incentives: This is a big one. Pension boards are often made up of people with conflicts of interest. Politicians want to get re-elected, and union leaders want to get the best benefits for their members. Both have reasons to support policies that keep costs low now, even if it creates huge debts for the future.

These failures create a vicious cycle. Underfunding puts a strain on government budgets. Because they can’t afford big pay raises now, governments and unions agree to bigger future benefits, like better pension formulas or new loopholes. The pension becomes a way to pay workers later instead of now.

This makes it even more tempting for employees to “game” the system. When a pension is a huge part of your total pay, you have a strong reason to make it as big as possible. The debt created by this gaming then makes the funding crisis worse, and the cycle continues. Individual “gaming” is a logical reaction to a broken system.

How to Fix the Problem

So, how do we fix this mess? It’s not enough to just catch the cheaters. The rules themselves need to change. This means we need to crack down on abuse, rethink how pensions are designed, and demand more transparency.

New Laws to Stop Spiking

Many states have passed laws to stop the worst kinds of pension spiking. These laws try to:

• Cap Overtime: Some places now limit how much overtime can be counted in pension calculations. New York’s Tier 6 plan, for example, caps pensionable overtime at about $20,958 a year.
• Lengthen the Averaging Period: A common fix is to change the final average salary period from three years to five years. This makes it harder for a last-minute pay spike to have a big effect.
• Limit Pay Growth: Some states have put a cap on how much your pay can grow from year to year for pension purposes. Kentucky, for example, won’t count any pay increase over 10% in a year toward your pension.
• Exclude Lump-Sum Payouts: Many new rules no longer count one-time payments, like leave cash-outs, as part of your pensionable salary.
• Make Employers Pay: As seen in North Carolina, some states now make employers pay for the cost of spiking. If a late-career pay raise creates a bigger pension than the state allows, the employer gets a bill for the full cost. This makes local governments think twice before approving questionable raises.

But passing these laws is hard. Public employee unions often sue, saying the changes are unfair to their members. In states with strong protections for pensions, like California, these lawsuits can win. Also, many of these new rules only apply to new hires. This may fix the problem in the long run, but it doesn’t do anything about the debt being created by current workers.

A Plan for Stronger Pensions

Just stopping spiking isn’t enough. Experts have laid out plans for bigger, more sustainable reforms. Here are four key ideas:

1. Honest Accounting: The first step is to stop using overly optimistic financial predictions. This means using realistic numbers for investment returns that are based on the market, not politics.
2. Better Governance: Pension systems need to be run better. This means changing pension boards to reduce conflicts of interest and requiring board members to have more financial expertise.
3. Risk-Sharing Plan Design: The system needs to be able to handle market ups and downs. This could mean moving to hybrid plans that combine a smaller traditional pension with a 401(k)-style account. Another idea is to have “auto-triggers” that automatically adjust contribution rates or future COLAs based on how the fund is doing.
4. Disciplined Funding: Most importantly, governments must pay their full pension bill every single year. States that have consistently made their full payments have much healthier pension funds than those that have not.

Just passing a law to stop overtime spiking without also fixing the accounting and funding is like putting a bandage on a deep wound. The financial pressure will just show up somewhere else. Only a full approach that addresses all these issues can create lasting stability.

Empowering the Watchdogs — A Guide to Public Transparency

A final, key part of reform is public transparency. In recent years, several watchdog groups and government agencies have created online tools that let anyone look at public pension data. This public oversight is a great way to stop abuse and demand accountability.

Here are some websites you can use to see the numbers for yourself:

• OpenTheBooks.com: This is one of the largest private collections of public spending data. You can search for public employee salaries and pensions by name or state.
• SeeThroughNY.net: This site, run by the Empire Center for Public Policy, has a detailed, searchable database of pension benefits for retirees in New York State and New York City.
• PublicPlansData.org: This site has detailed data for over 250 of the largest state and local pension plans in the U.S. It’s a great tool for looking at the financial health and assumptions of major systems.
• State-Specific Government Portals: Many states now have their own transparency websites with pension data. The Oregon Public Employees Retirement System (PERS) also provides a lot of information on its official website.

Conclusion

The main ways pensions are inflated are clear. Pension spiking, using overtime and leave cash-outs, directly games the pension formula and creates huge debts. Double-dipping lets people collect both a pension and a public salary, straining the system. And “quiet boosters,” like turning unused sick leave into service credit, are a powerful legal way to get a bigger payout for life.

But these tricks are just symptoms of a deeper crisis. Unrealistic investment predictions have allowed governments to underfund their pensions for years, creating a fragile system. This is made possible by a leadership structure full of conflicts of interest, where political pressure often wins out over financial responsibility.