Head of DWP Retirement Fund Is Placed on Leave Pending a Review

The manager of the Los Angeles Department of Water and Power’s $6-billion retirement fund has been placed on administrative leave following complaints and counter-complaints about mismanagement in the agency.

Acting DWP General Manager Frank Salas said Tuesday that retirement plan Manager Duamel Vellon was put on leave pending a review of problems that Salas declined to detail, citing confidentiality requirements for personnel matters.

“He has been placed on administrative leave. It has nothing to do with the integrity of the pension fund,” Salas said.

The action came a few weeks after DWP officials called on Vellon to explain why retirement plan members were not given proper advance notice that they were being sent year-2003 income statements for tax purposes that reflected 13 monthly payments instead of 12.

As a result, some retirees who report quarterly estimated taxes could be hit with IRS penalties, while retirees who receive federal and state assistance based on annual income could have their benefits jeopardized, DWP officials said.

Vellon said in a memo to the DWP Retirement Board that a fund supervisor was responsible for the income statements, and that Vellon had not been part of the process for sending out the statements. “This is indeed a real error of major proportions due to the exposure of the retirees, the plan and DWP to significant penalties,” Vellon wrote.

Vellon said he was abruptly put on leave Thursday, just days after he recommended that an outside auditor be hired to review problems with the pension fund. These include mistakes by private investment firms that Vellon said cost the city fund at least $19 million.

“I am as puzzled as anybody,” Vellon said Tuesday of his removal. “For years I have been bringing these questions up and they have been attacking me.”

Javier Romero, president of the DWP Retirement Board, said he was not consulted about the decision to put Vellon on leave, nor was the board involved in the decision to place a former assistant of Vellon’s in charge during his absence.

“My concern is that they appointed someone new without board direction,” Romero said. “I represent 8,600 members. I should at least have been told.”

The pension plan’s members include 10,000 DWP retirees and 8,600 current DWP employees.

Romero said he was unofficially informed that Vellon was put on administrative leave to address concerns about “liability” facing the retirement plan, but said he had not been provided with details. He was troubled that the leave so closely followed Vellon’s call for an auditor, a move that the board will consider today and that Romero said he supported.

In a memo to the board written three days before he was put on leave, Vellon said it would be “appropriate” to have external auditors review the finances of the pension fund, and he provided 11 examples of problems that warranted the action.

In one case, Vellon alleged that a private investment manager mistakenly sold the wrong bond, resulting in the potential loss of $1 million based on later fluctuations in bond prices.

Vellon said that in 2002, the pension fund lost more than $18 million because of questionable actions by private investment managers.

Vellon said he was told by one DWP official that there was concern that his demand for an audit might draw the attention of a federal grand jury that has subpoenaed all major DWP contracts except those involving the pension fund.