There is nothing more disheartening than trying your best to reduce the County’s defined benefit pension system’s liability and then receiving a correspondence from your retirement system that a small software glitch caused a $228 million error. And it’s not in your favor. It’s like a bad day at a game of Monopoly when you draw a disfavorable Community Chest card. We make a step forward on pension reform, but we get hit with two steps back on our liabilities. (Our liability is understated for a variety of other reasons—but that’s for another day.)
When the 2009 Comprehensive Annual Financial Report (CAFR) for the Orange County Employees Retirement System (OCERS) (http://www.ocers.org/pdf/finance/cafr/2009CAFR.pdf) was presented to the Board of Supervisors, I was publicly frustrated that the Management’s Discussion and Analysis section (page 16) made no mention of this sizable error. You had to go to the Experience Analysis section on page 99 to find a mention of the $228 million “correction to include all premium pay items.” Talk about disappointing disclosure.
Something is happening at OCERS over this issue. The auditor’s report is dated June 9, 2010. It’s taking some time to discover who is accountable for the mishap. It is disappointing to me that, as a Supervisor, I received an update from OC Register reporter Tony Saavedra on Thursday after I just met with the OCERS’ CEO and Board President on Tuesday with no mention of the matter. The OC Register article is provided below. It looks like communication within the County can still improve. Argh.
Premium pay is obviously an area where our Board has to do a little more analysis before we enter into our next negotiation cycle. Bilingual premium pay, shift differential pay, Peace Officer Standards & Training (POST) pay, on call pay, educational incentive pay, aircraft rescue firefighter pay, paramedic pay, motorcycle officer assignment pay, emergency dispatch pay, and training officer assignment pay all should have a second look. Now that we can quantify its cost—nearly a quarter of a million dollars is a significant cost—we should focus on these incidentals a little more closely. After all, where is the County going to find yet another $7 million per year for pension costs in its budget?
Oversight puts pension executives in hot seat
Two high-ranking officials at the Orange County Employees Retirement System have been placed on paid leave in connection with a $228 million mistake that has resulted in multi-million dollar pension catch-up bills for agencies countywide.
In particular, the Orange County Fire Authority has been handed a catch-up bill of $76 million – the amount of contributions that went uncollected for eight years for “special pay” stipends for paramedics, EMT’s, and others with specialized jobs.
“To get a bill like that was devastating,” said Joe Kerr, president of the 800-member Orange County Professional Firefighters. “How could this oversight have gone on for so many years?”
OCERS has agreed to let the firefighters pay the bill over a 25-year period, at $4.5 million a year, beginning in July, said Lori Zeller, OCFA assistant chief of business services.
The county will pay up to $7 million a year extra to make up for the uncollected contributions owed by county agencies for other county employees. The county’s share of the shortfall in contributions is $120 million, including deputies and others from the sheriff’s department. The rest is spread among the other agencies that belong to OCERS.
OCERS Assistant CEO Steve Cadena and Finance Officer Michelle Williamson were put on leave Feb. 18 while the agency conducts an audit on the massive mistake. Chief executive Steve Delaney said the action was taken to allow auditors to work unhampered.
Cadena earns $154,668.80 annually and Williamson makes $112,569.40.
Pensions themselves were not affected by the mistake, officials said.
“We are working with OCERS to sort through it all and they are doing reviews to make sure it doesn’t happen again,” Zeller said.
OCERS serves 12,800 retirees with a fund of $8.6 billion. Delaney said the mistake began when the agency installed new pension administration software in 2003. The computers started missing the premium pay portion of the members’ salaries. Billing rates were set on that inaccurate information, according to an April 2010 letter to the Board of Supervisors.
County supervisor John Moorlach said the mistake was especially frustrating.
“We’re fighting the pension battle and then there’s a problem with the software,” Moorlach said.
FIVE-YEAR LOOK BACKS
On this Sunday in 2006, John Seiler had the lead column in the OC Register’s Commentary section. It was titled “State Spending – Adding up the IOUs – A new accounting system has already unearthed bad news about state retirees’ health-care costs. And worse news is probably on the way.” I’m providing the opening two paragraphs and the paragraphs where I’m included. Some seven months after this column was written, and after I was elected, the County dramatically restructured its retiree medical plan and reduced the cost by $100 million annually. Five years later, the majority of other municipalities are still trying to address this hemorrhaging cost, which is another post-employee benefit that needs to be dealt with.
GASB-45 is an acronym you need to know about. It could cost you a lot of money through higher taxes or reduced government services.
Or it could be your new best friend, as this accounting measure forces governments to realistically report the obligations they must pay for, today and tomorrow.
Orange County Treasurer John Moorlach reminded me that he has warned for years about these unfunded liabilities. As to the county government, he said it’s “already is doing these actuarial studies.”
He pointed to a June 30, 2005, “Actuarial Valuation” of the County of Orange Retiree Healthcare Plan. It was conducted by Bartel Associates, which performs actuarial assessments. GASB-45 goes into effect for the county for the 2007-08 fiscal year, which begins July 1, 2007. The report calculated costs as if GASB-45 already was in effect.
The annual cost to the county budget is $126 million. That comes to 12.5 percent of the county payroll. That’s an incredible sum – one eighth of the county payroll.
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