California asks Bell to investigate police disability pensions

The state retirement system has asked Bell to investigate the validity of disability pensions given to at least 10 police officers — including four chiefs — that could bring them millions of dollars in extra benefits.

The California Public Employees Retirement System acted after The Times asked officials about allegations that Bell had used disability pensions and workers’ compensation settlements to boost payments to police chiefs as they were being forced from their jobs over the last decade.

In some instances, two retirees said, the city wrapped severance, unused vacation and sick time into the workers’ compensation settlements. Experts said this practice violates tax codes.

Bell’s former city administrator, Robert Rizzo, approved the pensions and settlements without City Council review, records show.

“If Rizzo wanted to get rid of you, he’d make some way to pay you off and make it beneficial for you financially,” former Chief Andreas Probst said. “Too many people I can name retired on medical. Bob took care of them.”

CalPERS sent a letter to Bell last week asking that the city determine whether disability retirements approved by Rizzo were based on “competent medical opinion.” The system also asked Bell about getting “updated medical evaluations to confirm that these members are still substantially incapacitated from performing regular duties.” If the review finds problems, the benefits could be curtailed.

Pedro Carrillo, Bell’s interim chief administrative officer, said he plans to brief the City Council soon about how to deal with the issue. He added that he had already replaced the city’s workers’ compensation attorney and third-party administrator.

“I have restructured the whole process for better checks and balances,” he said. “It appears the system … did not follow best practices and that it was set up for a few folks to be able to operate without checks and balances.”

There is also evidence that Bell used the approach to persuade another police chief, Randy Adams, to come to the city. Adams negotiated an agreement with Rizzo when he was hired in 2009 that stipulated that he suffered from back, knee and neck injuries and that the city would support his application for a disability pension. Adams did not apply for a similar disability retirement when he left the chief’s job in Glendale. Adams stepped down from office last year when the Bell salary scandal broke.

The police officials’ detailed medical records are private, so the grounds for granting their disability retirements are unclear.

State law allows city councils to approve disability retirements when an on-the-job injury prevents an employee from performing normal duties. The biggest benefit is that only half the pension is taxed. Workers’ compensation settlements are tax-free.

Rizzo’s attorney, James Spertus, said he found it hard to believe that his client schemed to give the officials those benefits. “It sounds pretty outlandish to claim the chief of police and Mr. Rizzo engaged in tax fraud, and I am virtually certain your perspective will be disproved by the facts.”

Rizzo and seven other former Bell officials have been accused of draining the city’s treasury and charged with corruption involving huge salaries, overly generous pensions, and loans of city funds to employees and businesses.

Two former police chiefs told The Times that Rizzo proposed retirement deals to minimize taxes for the retiree and lower payments for the city.

Probst was granted a $250,000 workers’ compensation settlement. Additionally, he received an annual disability retirement of $158,057, half of which is tax-free. (He now works as a security manager for a large corporation).

Probst said he didn’t think anything was wrong with the way his retirement was handled because he had suffered on-duty injuries to his leg and hip, facial fractures and had his spleen removed after a crash with a drunk driver. The doctor who examined him for his workers’ compensation claim cited injuries to his hip and back.

“I wasn’t after anything that wasn’t owed to me,” he said.

Probst had not been planning to quit until Rizzo told him the day before Thanksgiving 2008 that he had to retire or be fired. Probst, who had been chief for four years, opted for retirement.

He said the city owed him about $325,000 in severance, vacation and sick pay. Rizzo offered him $200,000, according to Probst. Rizzo encouraged him to apply for a disability retirement. Probst said Rizzo told him “the city saves money and you’re tax-free.”

They agreed on $250,000, which was paid as a workers’ compensation settlement. Probst said the city arranged his appointment with the doctor who declared him disabled.

In addition, Probst said, he was placed on “injured on duty” status on Dec. 1. He stopped working but continued to receive his salary until he officially retired July 5, 2009. As part of the deal, his salary was boosted from $175,000 a year to $192,000, which increased his pension.

This bundling of vacation and sick time into a workers’ compensation settlement would violate tax codes, several tax experts said.

If the allegations are true, “they’re in essence depriving both the federal government and the state government of income tax payroll withholdings,” said Gonzalo Freixes, associate dean at UCLA’s Anderson School of Management. “They would both be criminally liable for tax evasion. The employee is guilty because he committed the tax evasion,” and the employer “would be guilty of aiding and abetting tax evasion.”

John Barcal, an associate professor of accounting at USC’s Leventhal School of Accounting, added that the allegationsamount to falsifying documents.

Barcal said retirees could face charges if they knew it was wrong. If they didn’t, he said, they would have to pay back taxes, interest and penalties.

Not every Bell police chief took the city up on its offer.

Former Chief Mike Trevis said he turned down Rizzo’s offer of a disability retirement when he was fired, even though a lawyer for the city had the paperwork prepared.

The attorney said, “Fill them out and I’ll take care of the rest,” Trevis said. “There was nothing wrong with me, frankly, and I didn’t think it was an honorable way to leave.”

Besides Probst, three other former chiefs, Dennis Tavernelli, David Reed and Michael Chavez, received disability retirements. Chavez receives $116,040 a year; Tavernelli $165,708 and Reed $175,715. They declined to comment.

In addition to their disability pensions, Bell’s chiefs received workers’ compensation awards that ranged from Chavez’s $140,000 to Tavernelli’s nearly $400,000. Because they refused to talk to The Times, it could not be determined if their unused vacation and sick leave were included in their settlements.

Former Police Lt. Sergio Camacho, who took a disability retirement in 2009, said Rizzo and former Assistant City Manager Angela Spaccia told him his vacation, sick days and workers’ compensation settlement were rolled into his workers’ compensation payment of $96,354. He has a bad back, according to his workers’ compensation file.

“I don’t think my workers’ compensation claim was more than $10,000,” he said.

State pension administrators have also asked Bell to verify that Rizzo had the authority to approve disability retirements. In August 2000, Rizzo appears to have created a resolution in which the council granted the city administrator authority over disability retirements. State law requires that council resolutions must be signed by the mayor and city clerk. The resolution is signed only by Rizzo, and city officials said they could find no record of a council vote.

CalPERS has a 1990 resolution granting the city administrator authority over disability retirements. The resolution predates Rizzo, and CalPERS has asked the city to verify that it remains in effect.

jeff.gottlieb@latimes.com

ruben.vives@latimes.com