ORANGE COUNTY IN BANKRUPTCY : Retirement System Declares Independence : Investments: County employees’ pension board loses confidence, pulls funds from treasurer’s control.

Having lost confidence in the bankrupt county’s financial stewardship, the Orange County Employees Retirement System on Tuesday withdrew permission for the county treasurer to control its pension funds any longer.

The board also resolved to stop relying on the county auditor-controller’s annual audit of its financial affairs and to hire an independent auditor as a backup.

County officials who attended the board’s public meeting Tuesday expressed surprise at its bid for independence and appealed for a month’s delay to discuss the board’s concerns.

“I am absolutely surprised. I didn’t even receive an agenda until noon,” complained Pam Leaning, a manager in the County Administrative Office.

But the board voted 7 to 1 to pass the resolution, with only one member, Thomas Lightvoet, urging his colleagues to hear what the county might have to say.

Thomas E. Daxon, interim county treasurer and a member of the retirement board, was not in attendance.

Keith L. Concannon, the retirement board chairman, said the board already had many fruitless discussions with the treasurer’s office.

Concannon said his first priority is getting back $110 million in employee pension funds still tied up in the county investment pool. So far, the pension fund has retrieved only $20 million in emergency money.

Concannon said one of his worries is that the Board of Supervisors might “raid” the retirement system to ease its financial shortfall.

“The county is bankrupt. The retirement system is not,” observed retirement board member Robert Thomas. “Their crisis management should not affect our going concern.”

The $110 million of pension money in the county investment pool represents less than 5% of the pension fund’s approximately $2.5 billion in assets, board officials pointed out.

The retirement board also filed suit Tuesday against the county in U.S. Bankruptcy Court in Santa Ana to recover more than $10 million, plus interest, in pension money that has been withheld from members’ paychecks since the county filed for Chapter 9 bankruptcy protection on Dec. 6.

Terry Slattery, investment analyst for the retirement system, said the county collected the money from all county employees’ salaries and from the paychecks of other technically non-county employees who work in the county’s law library, vector control district and cemetery district.

“We don’t know what the county is doing with the money,” Slattery said. “We just need it so it can be invested, because the employees are entitled to that interest.”

County bankruptcy attorney Lee Bogdanoff said he was surprised by the lawsuit.

“I’m familiar with the issue,” Bogdanoff said. “I thought it had been resolved.” He would not elaborate.

Benjamin S. Seigel, who is representing the retirement system in the litigation, said the lawsuit “will make the county realize that (the retirement system) is serious.” He warned that if the county fails to return the additional $110 million owed to the board, “there may be further litigation.”

Harvey L. Leiderman, who drafted the board’s declaration of financial independence from the county, said it was complying with a state constitutional amendment voters approved in 1992 that gave it sole fiduciary responsibility for safeguarding employee retirement funds.

Leiderman said the initiative also provided that “as a matter of constitutional law, public employee retirement funds are protected from political meddling and intimidation.”

While the retirement board since 1992 has considered asserting its autonomy from the county treasurer’s office, Leiderman said, the bankruptcy forced the issue.

One of the board’s objections was that $65 million of the pension funds in the county investment pool were not supposed to be there, Leiderman said. Rather, he said, the money was to have been kept in a separate account where it would be available within 24 hours’ notice for real estate investments.

But “(former county Treasurer-Tax Collector Robert L.) Citron commingled the funds in the investment pool,” Leiderman said.

As part of Tuesday’s resolution, the retirement board said it would enter into an agreement with a trust company to receive and administer its funds and would hire an outside firm to conduct its annual audits, beginning with the 1994 calendar year.

Board members said they would compare their results against the county audit.

“Somehow in the past few months I have lost faith in the audits I’ve been reading,” board member Sara Ruckle said.

Times staff writer Susan Marquez Owen contributed to this story.