Originally Posted by Lane Meyers
I don't know the exact numbers, but I would bet that the vast majority are FAP plans. I agree that any plan that uses solely the final year's pay, and allows for spiking, is begging for abuse.
I don't know the numbers either, but I have one client that uses the highest 36 months. On its face it sounds like the final 3 year average, but it is actually just what it says. The highest 36 (nonconsecutive) months of earnings over their career. Whenever they cash out some unused sick time, that month goes into the average. I mean, how many people in the private sector can even cash out unused sick time much less spike their pension with it? They even have one employer that pays every two weeks, so for those members the months with 3 paychecks wind up in the average.
The plans are set up to seem reasonable, but then they are tweaked over the years to allow more and more abuse. I work with these plans every day, and I will tell anyone who will listen what the problems are and what some solutions are. Believe me, nothing suits these people more than having actuaries argue among themselves about what the discount rate should be. Assumptions do not affect the cost of the plan. The cost of the plan is the benefits that are paid.