ORANGE COUNTY IN BANKRUPTCY : County Might Try to Tap Pension Surplus

County administrators are considering a potentially controversial plan that would harness a $200-million surplus in the Orange County Employee Retirement System to help pull the county out of its fiscal woes.

Interim county Treasurer Thomas E. Daxon said he might ask state legislators to let the cash-strapped county “use this excess cash to fund part of the county’s rehabilitation and, at the same time, introduce a better plan for the people who work here.”

Daxon, in a March 1 memo to Supervisor Marian Bergeson, said that the unusual proposal is “outside the box and requires some forward thinking. . . . Hopefully we can find some of that in Sacramento.”

Word that the county might try to tap the retirement plan surplus prompted angry responses from employee representatives.

“With all due respect to Mr. Daxon, we have no idea of how he would know if it is over-funded--unless he’s thinking about cutting benefits,” said John H. Sawyer, general manager of the Orange County Employees Assn.

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Sawyer said he opposes removing excess funds because “there are years that (the plan) makes money and years that it loses money.”

Daxon wasn’t available for comment Friday, but some pension fund experts said that the proposal to resuscitate the county’s general fund with excess pension money runs counter to state laws and regulations.

“Any of our employers who have an excess can only use that money to credit or offset (future) contributions,” said Michael Ogata,spokesman for the Sacramento-based California Public Employees Retirement System, the nation’s largest public pension fund. Employers “aren’t allowed to withdraw it or write a check for it,” Ogata said. “As a matter of functionality, money in the trust is obligated for the beneficiaries of the trust, not the employers.”

Over-funded pension plans came to the public’s attention during the late 1980s when corporations started to view the funds as potential revenue sources that could be used to fund corporate growth.

It was “not infrequent” for large companies to terminate plans, purchase annuities for employees and use the excess cash for corporate purposes, said David Ganz,spokesman for the Labor Department’s Pension and Welfare Benefits Administration, which oversees private-sector pension plans.

But corporate withdrawals of pension fund cash stalled in the late 1980s after Congress imposed a hefty tax on funds withdrawn for general corporate use. Said Ganz: “There have been virtually no (plan) terminations since that tax.”

Daxon’s memo suggests that state lawmakers consider legislation that would allow bankrupt counties to withdraw funds through bankruptcy court. He maintained that counties should be required to have sufficient reserve assets to pay “all vested benefits as they come due,” and that the county guarantee that all benefits be paid.

Daxon’s memorandum also discusses possible modification of the county’s existing pension plan or creation of a new plan, most likely a defined benefit or defined contribution plan.

Daxon, a former Oklahoma state auditor, said the pension proposal is patterned after a successful plan that Oklahoma County created. That plan is “very popular with the employees,” Daxon wrote. “I am confident that we can find a way to do the same for our employees while making cash available to address the county’s crisis.”

Times staff writer Lee Romney contributed to this report.