Craig Harris

The Republic | azcentral.com

Ex-pension Administrator Jim Hacking gets a $107,250 severance settlement in wake of illegal raises.

Pension fund agrees to pay Hacking's legal bills if future legal problems arise from his tenure.

Hacking also will receive an $86,704 pension.

Jim Hacking, a former Arizona public-safety pension administrator who authorized illegal staff pay raises, will receive a severance of roughly $107,250, an annual pension of $86,704, and a commitment to cover all his bills should he be named in "any legal proceeding."

The Arizona Republic on Thursday obtained an unsigned copy of the severance agreement, which a spokesman said would be signed by Hacking and Public Safety Personnel Retirement System Chairman Brian Tobin, who was involved in negotiations.

Other records the newspaper obtained detail the lifetime annual pension Hacking is projected to receive for his roughly nine years of employment, as well as a $16,406 payout for unused vacation time.

Hacking, when reached by phone, declined to comment. Tobin, a Phoenix deputy fire chief, did not return a call or text message seeking comment.

Hacking, the system's administrator since August 2005, was placed on administrative leave July 16 after The Republic uncovered evidence that he had given secret raises to his investment staff without state Department of Administration approval, as required by law. Tobin and Hacking have acknowledged the raises of up to 27 percent violated state law.

The $7.9 billion retirement system for police officers, firefighters, elected officials and prison guards also is under a federal criminal investigation. During Hacking's tenure, the system's health has significantly declined, causing governments and beneficiaries to pay more into the trust.

The board's seven members, all appointed by Gov. Jan Brewer, decided July 11 to negotiate a settlement with Hacking under his $234,000 annual contract despite a provision allowing him to be fired for cause.

Brewer's office had no comment on Hacking's severance, though she has expressed concern about large pay raises given at PSPRS.

"This agreement avoids further costly litigation, as well as the cost of paying out the entire year of Mr. Hacking's Employment Agreement, which would not otherwise terminate until June 30, 2015. The Attorney General's Office represented PSPRS in this matter," Marco Ceglie, a trust spokesman, said in a written statement.

Tobin also asked state administrators to begin an audit of PSPRS with "significant attention" paid to personnel and salary practices.

Phoenix City Councilman Sal DiCiccio, a frequent critic of public pension abuses, earlier this month called on the Attorney General's Office to investigate the illegal raises. On Thursday, DiCiccio said he was stunned.

"The individual created a scheme that was illegal, and he is being rewarded," DiCiccio said. "I figured he would get some severance and a pension, but what they did here was construct an agreement that was a slap in the face to taxpayers and the beneficiaries of the system."

The settlement calls for:

• Hacking to be paid through Dec. 31.

• Hacking and the retirement system to agree to not sue each other.

• The retirement system to pay all "reasonable" travel expenses should Hacking, who has a home in St. Paul, Minn., be required to attend a meeting, deposition or hearing in Arizona.

• The retirement system to cover all of Hacking's potential legal costs.

"Should Mr. Hacking be personally named as a defendant in any legal proceeding arising out of or relating to actions taken in the course and scope of his employment, the system agrees to fully defend and indemnify Mr. Hacking against such claim(s), including court costs and attorneys' fees," the settlement reads.

DiCiccio said paying for Hacking's legal bills could cost the trust tens of thousands of dollars.

Hacking's departure comes after a year in which four high-level staff members quit amid allegations that the trust used inflated real-estate values in annual reports to improve its financial performance and trigger bonuses. Hacking denies the allegations.

The PSPRS board in December unanimously voted to extend Hacking's contract by one year, even though the four staff members had resigned between June and September because of the real-estate controversy.

Tobin executed Hacking's extension on March 11. That was four days after the board hired a criminal defense attorney to deal with a federal grand-jury subpoena in relation to an FBI investigation.

Hacking in November sought raises for five employees. He told the board the hikes were to replace a controversial bonus program the board had suspended. And, Hacking noted, his staff was doing more work with the exodus of the other employees.

A divided board approved the raises, but it also needed approval from the state Department of Administration under a 2012 personnel reform law Brewer pushed through the Legislature.

The Department of Administration had held off approving those raises because of the numerous controversies. In early July, The Republic asked PSPRS the status of those raises and was told the ADOA had approved them.

Department officials told the newspaper that the ADOA never approved the raises, then began an investigation. Although Hacking had actively negotiated with the ADOA this year on the raises and led state personnel officials to believe they had not gone into effect, Hacking ordered his human-resources director to implement the raises in December, according to trust records.

Hacking, 68, will receive a five-figure pension because, as PSPRS administrator, he oversaw the Elected Officials' Retirement Plan and was entitled by law to receive a pension from that system, even though he never was voted into public office.