20 Counties Face Pension Shake-Up
In the most sweeping shake-up in county pension systems in California, Los Angeles, Orange and 18 other counties are moving to hand out tens of millions of dollars in higher retirement benefits to comply with a little-noticed state Supreme Court ruling.
The overhaul in the way retirement benefits are calculated for more than 100,000 workers across the state is expected to cost counties and their pension systems even more millions when staff costs are added, county and retirement program representatives said. Because of the vagaries of the Supreme Court ruling, lawsuits are expected to continue for years.
“This is huge. This is a revolution as far as how and how much these county workers get when they retire,” said Cody Ferguson, president of the State Assn. of County Retirement Systems.
Since October, when the court ruled that Ventura County owed its employees pensions based not only on their salaries but on other perks such as car allowances and bonuses, 13 county retirement boards have voted to give the windfall to their workers. The seven other counties affected by the ruling are still grappling with how to respond.
On Feb. 6, Orange County became the first to agree not only to raise pensions for its current workers but to make retroactive payments to its retirees. The 7-2 decision by the county’s Retirement Board will award retirees three years of back pension payments, at a cost to the county of about $17 million a year. Three years is the statute of limitations for filing pension claims. County officials said the money will have to come from other programs, but they are gambling that the decision will head off costly lawsuits.
The board of Los Angeles’ retirement system, the biggest county system in the state with 42,000 retirees and 80,000 employees, voted this month to pay additional benefits to its current workers but not to retirees. The decision will probably cost the county more than $4 million a year. The sheriff’s deputies union has threatened to file suit.
In Sacramento, Contra Costa and Marin counties, lawsuits by retirees challenging decisions similar to Los Angeles’ have been filed.
The court’s ruling applies to the 20 counties covered by a 1937 law that determines pensions based on workers’ salaries but does not include most of their fringe benefits. Most of the state’s 38 other counties are part of the California Public Employees Retirement System, which does count additional payments toward pensions.
“For the majority of retirees, it will be righting some old wrongs,” said Bill Kirkwood, president of the Retired Employees Assn. of Orange County. “Quite often, in lieu of salary increases we were given other things, cafeteria allowances, car allowances and such, that we appreciated at the time. But then when you retire and you realize the money had not been computed into your pension, you realize you’ve been had.”
The Ventura County decision came in a case filed by the 700-member Deputy Sheriffs Assn., whose members contended that extra money they received for bilingual skills, uniform maintenance, riding motorcycles and cashed-out vacation time, all of it taxable, should count toward their pensions.
The court did not specify how far back counties should recalculate pensions. But knowing that they had to face the issue, representatives of all 20 counties met in Santa Ana two weeks ago.
Twelve counties have rejected Orange County’s position, opting instead for the half step Los Angeles chose--adding benefits for current workers, but ignoring all but the small fraction of retirees who left their jobs since the state court’s ruling. Seven counties have yet to decide.
“There is little question there will be lawsuits over these issues, but counties are hoping they might avoid paying out years of back benefits,” said Stephen Keil, legislative coordinator for the State Assn. of Counties.
The lobbying group is trying to persuade legislators to introduce legislation that would limit the liability of counties.
The increase in benefits varies from county to county and worker to worker. But most expect county retirement fund contributions to rise by about 10%. Because retirement payments are funded by both employee and employer contributions, workers also will have to increase the amount they pay. Pension contributions for active employees will rise 4% to 8% in most counties, depending on employees’ age, salary and compensation packages. But their retirement benefits will rise even more.
County officials say that if they are forced to pay the back benefits, they may have to try limiting perks paid to employees in negotiations with unions.
“The cost is going to be enormous. There’s never been anything like it,” Keil said. “I fear that, frankly, this question of retroactivity could be what kills the goose that laid the golden egg.”
In Orange County, more than 100 county retirees and workers who packed a hearing on the issue applauded when the Retirement Board voted to pay the back pension benefits to retirees by July 1.
The benefits boost will apply to all of the county’s 16,000 active workers plus 4,000 more people who work for special districts and 6,800 retirees. An actuary hired by the Retirement Board estimated that retirees will receive an average lump sum payment of $3,000 in back benefits each. Police officers and firefighters who are eligible for a long list of salary add-ons will benefit the most. A few retirees who held top positions will receive more than $25,000 in back benefits, the actuary, Tim Marnell, said.
In addition to the back pay, Orange County retirees will receive an average of about $500 more a month in pension payments starting in July.
“I suppose if I were a retiree, I’d be feeling pretty good about this, but for the county it’s a big hit. It just came at us like, boom,” County Chief Financial Officer Gary Burton said.
“The county doesn’t really have $17 million sitting around right now waiting to be programmed. It’s going to have to come out of reductions from somewhere, and we just don’t know where right now.”
Orange County’s Retirement Board, like its counterparts elsewhere, is composed of employee and county representatives. Its decisions are not subject to approval by the Board of Supervisors, which appoints four of the nine board members.
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When lawyers for the county suggested in November that the retirement board delay making a decision, the board rejected the proposal and hired its own lawyer. Seven of the nine board members are current and former county employees who will eventually benefit from the increase in pension benefits.
“‘When I come here, I take off my hat as a Sheriff’s Department official and I put on my hat as a fiduciary of the system,” said Thomas Fox, chairman of the Retirement Board and a training manager at the Orange County Sheriff’s Department.
“Yes, it’s very difficult at times, but that’s the viewpoint I try to make my decisions from.”
Calculating how much the retirees are owed and handling their claims over the next few months is a monumental task. The Retirement Board has allocated $550,000 to hire 12 workers to process the claims and to rework the computer system that calculates pension benefits.
In Ventura County, where the dispute began, officials have agreed to make the pension changes retroactive to three years for all of the county’s unions except the Sheriffs Assn., which will get back benefits to March 1992, when the union filed suit for the additional pension money.
In other counties, lawyers for retirees and unions are preparing their legal briefs.
“It’s very simple. L.A. County is going to get sued, and Orange County is probably less likely to,” said Stephen H. Silver, the Santa Monica attorney who won the Ventura case.
“I have five suits, including one in L.A. County, that are close to being filed. I’m in my car right now on my way to meet with people from another county who want to talk about a suit. And I’m just one lawyer.”
Marsha Richter, chief executive of the Los Angeles County Employees Retirement Assn., said she expects the pension system’s decision to be challenged in the courts.
“We’re looking for subsequent litigation to tell us what we have to do,” Richter said.
She said that by waiting for suits to be filed against the pension system, officials are seeking to avoid the “difficult, potentially impossible” task of sifting through years of employment records to recalculate benefits to retirees. Richter said that good county payroll records do not exist beyond the past three to five years.
“This was stuff that, as far as we were concerned, didn’t even count,” Richter said. “We just didn’t keep it. Now, I’ve got to tell you, we’re worried.”
