Jerry Zeldenrust retired as a commander from the Lansing Police Department in 2008, and received quite the parting gift: a $26,000 raise on his last day, hiking his annual salary to $133,680.

It turned out to be a gift that keeps on giving.

The last-minute pay hike meant that Zeldenrust’s annual pension soared to about $96,000 a year – or roughly $19,000 more than it would have been had he retired at the same time without the salary hike, according to documents obtained by the Better Government Association under the Illinois Freedom of Information Act.

A BGA investigation found that Zeldenrust is hardly alone. Over the past 20 or so years about 40 veteran Lansing police officers and firefighters were given salary boosts by the village as they were retiring, spiking their individual pensions by at least $6,000 each in the first year alone. All together, at least $2.5 million in added pension payouts have been distributed since this taxpayer-funded perk was created in 1993.

GRAPHIC: Lansing’s Last-Day Largess for RetireesClick to enlarge

EDITORIAL: Hey Lansing, Why Wait? Take Public Pension Cure

But it turns out the sweetener, which could cost Lansing taxpayers millions of dollars more in coming years, may not even be legal. Either way, it’s another example of the widespread pension fund manipulation and gamesmanship that’s contributing to the deep financial troubles of public-sector retirement systems in Illinois.

The village board created Lansing’s bonus program as an incentive to get older higher-paid public-safety workers to retire so younger lower-paid replacements could be hired.

Retiring first responders can take a raise of either 25 percent or $12,000 on their last day. The only requirement is that they’re within six months of turning 50 and have 20 years on the job.

The enhanced salaries are then used in pension calculations.

However, the Illinois Department of Insurance, which regulates public-sector benefits, admonished the village’s pension funds to halt the practice in 1995 and 2006, but officials apparently ignored demands. Earlier this year, Lansing’s village attorney contacted the state agency, at the behest of Lansing Village President Norm Abbott, asking for an advisory opinion on the perk.

The department of insurance’s deputy director, Travis March, responded in February, writing: “The early retirement incentive should have been considered as a bonus and should not have been used to calculate pensionable salary. . . . The Lansing Police and Fire Pension funds should immediately discontinue the recognition of the retirement incentive as salary for pension purposes.”

There is probably no way for Lansing to recover the $2.5 million that’s already been paid out, any more than any Illinois pension plan can undo the excesses of the past, but Abbott said he wants to repeal the current law that allows the perk. That, however, is easier said than done because he can’t muster enough support on the village board, which is riddled with potential conflicts.

Trustee Julie Butler’s husband is a Lansing cop, although she said she’s abstaining from all discussions of this issue. And Trustee Tony DeLaurentis, who declined to comment, has a son-in-law on the police department.

“I need four [votes], I don’t care how I get it,” Abbott said of the seven-member board. “I don’t know of any [other] town or place that people can retire at 50 years of age and get a [$60,000] or $70,000 pension.”

Then-Village President Robert West, who ran Lansing at the time the initial resolution creating the perk was introduced, told the BGA: “At the time we felt we were top heavy. There have been two mayors since me. It’s probably time to change.”

Abbott said there hasn’t been an analysis to determine whether the incentive’s had a positive impact on village finances – through reduced salaries – but village officials believe added pension payouts far outweigh any payroll savings. The south suburb has about 28,000 residents, and a municipal operating budget of about $45 million.

Either way, the perks certainly aren’t helping the finances of Lansing’s taxpayer-supported retirement funds, which have the same kind of unfunded liabilities that are imperiling pension funds around the state.

The Lansing police pension fund currently holds around $24 million, which amounts to just 50 percent of expected liabilities.

The fire fund, which holds about $9 million, is 60 percent funded.

For the record, pension funds must be at least 90 percent funded by 2040.

The department of insurance is continuing to investigate, and has the authority to impose fines down the road if the perk continues.

Told of Lansing’s situation, Jeffrey Brown, a finance professor at the University of Illinois in Urbana-Champaign with an expertise in employee benefits, said it’s not the norm.

“What is unusual about it is the idea that a single day of salary could forever increase pension benefits,” Brown said. “In most well designed [defined benefit] plans – whether public or private – the pension benefit would be based on a final average earnings that is averaged over multiple years. It is very odd to have it based on a final day of salary. I would be very concerned about this from a governance perspective because it is hard to monitor and control.”

Lansing is the latest addition to a growing list of public-pension troubles the BGA has uncovered in local suburbs, Chicago, Cook County and the State of Illinois.