Michelle Ye Hee Lee

The Republic | azcentral.com

Pension fund administrator Jim Hacking will be placed on leave%2C pending termination negotiations.

The pension board acted after learning raises for five employees were done without correct approval.

Hacking is expected to depart permanently by July 21.

The board of the embattled Public Safety Personnel Retirement System agreed Friday to place administrator Jim Hacking on leave and eventually terminate his contract in the wake of illegal raises for five employees without Arizona Department of Administration approval.

Hacking's administrative leave is effective Wednesday. Board Chairman Brian Tobin said the board will use the time to negotiate the terms of a settlement agreement that is expected to result in the board voting to terminate him by July 21.

"We felt it was time for the administrator to retire and move on in other things so we can get a change of leadership at PSPRS," Tobin said.

Tobin said Hacking will be eligible to draw a retirement from the Elected Officials Retirement Plan, one of three pension funds administered by PSPRS.

Hacking has been the administrator of the $7.9billion pension trust for police officers, firefighters, election officials and prison guards since 2005.

The PSPRS board met in a two-hour closed-door executive session Friday to discuss Hacking's employment status. An emergency board meeting had been convened to consider his fate after

The Arizona Republic

disclosed the illegal raises earlier this week.

Deputy Administrator Jared Smout will assume Hacking's responsibilities, the board said in a written statement.

Hacking would not comment.

Earlier this week, he acknowledged that his agency raised the pay for five PSPRS investment staffers without seeking Administration Department approval, which is required by law. The raises went into effect even though the board had rescinded bonuses for PSPRS employees late last year.

The PSPRS on Wednesday halted the illegal raises.

When asked Friday if the board intended to require employees to return what they have been paid so far, Tobin said he had no authority to require that.

In a letter to Administration Department Director Brian McNeil, Tobin said the raises were approved by the board last November "with the understanding that it was pending ADOA approval and/or consultation, as appropriate."

Phoenix City Councilman Sal DiCiccio, a frequent critic of public-pension abuses, this week called on the state Attorney General's Office to seek recovery of the payouts and to investigate and prosecute anyone "directly responsible" for permitting the raises if they were illegal.

Hacking's $234,000 annual contract was renewed in December and formalized in March, extending until at least June 30, 2015.

The extension says the board must buy out his contract if he is terminated for any reason other than "cause," defined as "malfeasance, gross negligence, insubordination or failure to comply with ... established policies and procedures."

When asked if the board considered terminating Hacking for cause, Tobin said the board "felt that this was the proper path to take, considering the legal advice we obtained by counsel."

Levi Bolton, executive director of the Arizona Police Association, noted the significance of the board's decision Friday. While the exact reasons that led to the board's announcement are not clear because they were discussed in executive session, Bolton said the decision "affects all the men and women in public safety" and their beneficiaries.

"To make a decision this profound, this demonstrative, I have to believe that the allegations, or the allegation of conduct that called them to take this action, were severe and serious enough that they would ask to have him replaced," Bolton said.

Tobin will negotiate with Hacking on behalf of the board over the next 10 days and determine whether Hacking will get additional pay.

The board asked for the negotiation, and Hacking agreed, Tobin said.

The pension fund also is under a state workplace-violation probe, and the FBI is conducting a criminal investigation.

The criminal probe began after former PSPRS employees alleged the pension fund used inflated real-estate values to enhance staff bonuses.

Hacking has denied the allegations.

The raises in question were initiated in December, with four of them retroactive to July 1, 2013. All five of the employees then received cost-of-living adjustments.

The increases ranged from 7.9 to 26.7percent, with four employees getting annual salary increases in excess of $22,000.