Workers Will Lose 10% of Retirement Funds : Bankruptcy: Employees who invested in Orange County’s deferred compensation program react with outrage and fear.

Whether they are judges or clerical workers, county employees wonder what else can befall them.

For weeks they have labored under the likelihood of sweeping layoffs. Then on Thursday afternoon they learned that they will lose 10% of the retirement money invested in the county’s deferred compensation program--and that the option of collecting benefits in one lump payment has been canceled.

“Of course, it’s the talk among the employees,” said Harbor Municipal Judge Margaret Anderson, who tried to get her money out of the retirement plan long ago but met with official roadblocks. “I had two probation officers and several county employees in my office . . . and they’re in a state of shock.”

Outraged and frightened employees were phoning the Orange County Employees Assn. offices in a panic Thursday, including one recent retiree who was counting on using his deferred compensation for a down payment on a house.

“They’ve stripped employees of their rights,” said Linda Pierpoint, an association spokeswoman. “It caps losses at 10%, but our feeling is they shouldn’t be capped at all. Employees put that money in there in good faith.”

County officials say about 1,800 employees contribute to the $80-million deferred compensation fund, a tax-exempt retirement plan. Some employees--who are permitted to contribute up to $7,500 a year to the fund--have amassed more than $250,000.

The retirement money was frozen along with other county assets after the county declared bankruptcy last month and began grappling with a $172-million deficit. The retirement money had been invested in the county’s pool, which lost $2 billion in the last year.

Officials say that money placed in the county’s deferred compensation plan is the property of the county, and that employees were warned that such money was subject to fluctuations or forfeiture.

“It was quite clear that this was an investment, subject to the ups and downs of any investment,” said Sandra Sternberg, a spokeswoman for the county administrative office.

In a prepared statement, Board of Supervisors Chairman Gaddi Vasquez said Thursday’s resolution of the deferred compensation plan means employees can plan with certainty for the future.

“This dispels confusion,” Supervisor Roger Stanton said. “It elevates the degree of confidence on the part of those who are either near or at their retirement eligibility.”

Thursday’s announcement does not affect a second deferred compensation plan used by many employees but run by the Ohio-based Public Employees Benefits Services Corp., rather than the county. Union officials said they have gotten calls this week from workers who are confused about the two programs.

Bitter employees said officials’ talk of certainty and the future rings hollow. Many of the employees laid off this week, for instance, thought deferred compensation would tide them over until their next jobs, only to find that it will be spread over a minimum five-year period, union officials and workers said.

Others foresaw the deferred compensation money as a fixed nest egg, but now the nest egg is shrinking.

“I eat day-old bread, and I buy clothes in the thrift store, and I am saving so my retirement can be fairly comfortable,” said a female employee who spoke on the condition of anonymity. “Now, we’re told we’ll be getting 90% of what we put in. We all sign a contract when we get into this, and they are not abiding by the contract.”

The woman, who would only identify herself as a clerical worker, said she has contributed more than $60,000 to the retirement fund since 1984.

Anderson said: “I’m very disappointed, because . . . I’ve lost part of my children’s inheritance.”

The county holds all the cards, she added, because she is obligated to leave her money in the fund until she dies, quits or retires. “And I wouldn’t give them the satisfaction of dying,” she said.

South County Municipal Judge Pamela Iles, who has $50,000 in the program, said the retirement plan is an easy target for the supervisors.

“I’m concerned about the (supervisors) selecting different debts to pay off in full,” she said. “And it appears to me they have chosen deferred comp people to hit because they have no independent political standing.”

Some county employees have joined a class-action suit against former Tax Collector-Treasurer Robert L. Citron and other county officials, trying to recoup their retirement benefits. The suit was filed last week by Irvine attorney Frank Nunes.

“Our position is: It’s not the county’s money,” Nunes said. “They have no right to take that money and use it for anything else.”

Anderson and others said they would rather invest their money elsewhere.

“I’d rather take it to Vegas and put it on the pass line,” Anderson said. “Better to bet on red or black, pass or don’t pass, than put it with the county. And I’d have fun playing. And they’d give me free drinks.”

Times staff writer Susan Marquez Owen contributed to this report.