O.C. Looks to Fill Gap in Pensions

Orange County could find itself on the hook in coming years to cover excess pension costs for at least a dozen high-level managers whose retirement pay, sweetened by supervisors in August, exceeds a federal cap for public employees.

Federal law limits how much government workers who aren’t paid Social Security benefits can receive from their retirement systems -- and state law requires counties to make up any difference in what retirees are due.

That wasn’t an issue in Orange County until supervisors voted in August to boost pensions.

With that action, an executive manager making $150,000 a year who retires after 30 years of Orange County employment would earn, for example, an extra $46,350 a year. About half of that increased pension can be covered by the Orange County Employees Retirement System before bumping up against the federal limit.

The county will have to pay the difference until the earnings limit -- which increases as the worker ages -- catches up. In this example, the limit would rise enough after three years for the retirement system to begin covering the full payment.

County government and employees contribute to the county’s retirement system, which operates separately from the county’s general fund.

This is the first time Orange County has faced this pension payment predicament. Under the old formula, county-paid benefits weren’t high enough to breach the federal limit. The only exception was the retirement of a top official in the wake of the county’s 1994 bankruptcy.

Los Angeles County has a fund for excess pension payments, but no employees have qualified, according to the county’s compensation department. Los Angeles County pension benefits are lower and workers must retire at age 61 to receive full benefits, compared with 55 in Orange County.

Orange County officials couldn’t quantify this week how much it would cost to cover the payments or say which employees would be affected. Officials also couldn’t say who would be responsible for the shortfall payments -- the county or the employees, whose multiyear contracts don’t specifically address the issue.

Supervisors in August increased the amount of money retirees could receive, and allowed them to retire with full benefits at age 55 instead of 62, depending on their years of service. Some employees can now retire with 100% of their pay. Human resources staffers said they only just realized that checks from the retirement system would fall short for some workers.

The unknowns didn’t sit well with Supervisors Chris Norby and Chuck Smith, who voted against the benefit increase. The supervisors who supported the boost -- Tom Wilson, Jim Silva and Bill Campbell -- said they expected cost increases to be covered by additional employee contributions and pay concessions.

Norby and Smith said supervisors should have been told in August about potential excess payments.

Supervisors again split 3-2 this week on whether to spend $10,000 for a law firm to recommend how to resolve the pension quandary.

Norby sounded exacerbated by the need for the study, and voted with Smith to oppose it. “We’re being asked to spend $660 an hour for loophole lawyers to enable us to pay higher pensions than federal law allows,” he said.

This is the third time that supervisors have complained about being given mistaken assurances by county staff that granting worker perks wouldn’t cost the county more money.

In December 2001, the Board of Supervisors unanimously approved a pension package for safety workers, allowing them to retire at 90% of their salaries at age 50, with 30 years of service. Supervisors were told the $400-million benefit would be covered by stock market investment gains, even though the market already had begun falling.

The county’s unfunded accrued pension liability is now about $1.3 billion for the cost of covering benefits for retired and current county employees.

In December 2002, supervisors approved a $75-million package of employee perks and bonuses at the same time layoffs and service cutbacks were being considered, triggering criticism by an Orange County Grand Jury.

The August pension boost is expected to cost an additional $280 million. Auditor-Controller David Sundstrom said employee contributions should make up the difference in four years; the payments are promised in contracts that expire in three years.

Additional costs for the boosted pensions should be covered by county employees, not the general fund, Campbell said this week -- even if it means asking workers to pay more to cover the difference for their top-paid retiring colleagues.