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Multimillion-dollar error found in San Jose pension system

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Unread 01.09.09, 04:45 PM
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Multimillion-dollar error found in San Jose pension system

Multimillion-dollar error found in San Jose pension system

By John Woolfolk

Mercury News

Posted: 01/08/2009 07:10:00 PM PST




Though San Jose's employee pension system cannot fully cover the costs of future benefits, many retired city workers are still expecting bonus checks for high earnings reaped before the recent market crash.
That extra bonus is under scrutiny now, and not just because the city's pension funds have lost more than $1 billion a quarter of their value in the meltdown. City officials have discovered a multimillion-dollar miscalculation that apparently caused thousands of retirees to be overpaid bonuses for several years.

"Multiple millions may have been distributed in error," said City Councilman Pete Constant, a pension fund trustee since 2007.
The council Tuesday will discuss the pension systems' overall health, which is of concern because the city's deficit-plagued general operating fund could be tapped to cover pension shortfalls.

City officials have yet to determine how much was overpaid in bonus checks, over how many years and whether the nearly 2,900 beneficiaries in the Federated City Employees' Retirement System will end up owing money to the city.

"No one wants to try to collect from retirees," said Retirement Director Russell Crosby. "Several options are being studied."
In the meantime, November bonus checks for those retirees have been delayed, raising concerns among many former city workers who rely on the extra money.

Bob Leininger, president of the San Jose Retired Employees Association,
said that "a lot of people are getting real nervous" and that he's "just telling everyone to relax" until all the facts are known.
Retired police officers and firefighters, who have a separate city pension system, are not affected and received their bonus checks in late November for earnings in the budget year that ended June 30, 2007.

And affected retirees' regular pensions monthly payments up to 75 percent of their former salaries also are unaffected by the overpayment issue. The problem concerns an extra benefit paid out as a "13th check" when earnings on the pension fund exceed their growth target, which was 8.25 percent for the Federated plan. The city puts 10 percent of net excess earnings into a separate reserve fund, from which a portion is paid to retirees as a bonus.

Payments in recent years have ranged from $1 million to $1.5 million, Crosby said. That's about $350 to $550 per retiree, depending on years worked and years in retirement.

The benefit is uncommon, say officials with San Francisco's pension system and with the California Public Employees' Retirement System. And Crosby, who managed private-sector pensions before taking over as San Jose's retirement director in August 2007, said it would be unheard of in the corporate world to pay earnings bonuses on underfunded systems.

Crosby discovered the error through internal audits he initiated after coming to San Jose. When several Federated plan reserve accounts were consolidated in 2005, one was shortchanged on earnings credits.
That resulted in overpayments to the reserve account of 3 percent in 2006 and 7 percent in 2007, Crosby said. Had the error not been caught, it would have caused an overpayment this year of 29 percent, or $2.3 million.

When pension trustees reviewed the situation in November, they asked the city administration to check back at least a decade for additional errors. They found another large overpayment in 1999. In addition, they discovered that another account for retiree medical benefits also had been shorted on earnings credit for "some period of time," Crosby said, further increasing the amount of overpayments.

Generally, waiving erroneous overpayments by the city would constitute an illegal gift of public funds. In recent years, San Jose employees who were overpaid during their military tours of duty had to repay the money after they returned.

But the retiree overpayments are more complicated, and legal issues are still being researched, said Senior Deputy City Attorney Mollie Dent.
Constant, a retired San Jose police officer who has urged greater oversight of the city's pension systems, questioned whether excess earnings bonuses make sense when the funds cannot cover their projected costs. At the most recent accounting two to three years ago, the funds' combined assets were enough to cover 92 percent of projected pension costs and just 8 percent of retiree health benefits.
"We need to look at how we define excess earnings," he said, "and see how we apply that at times when we are not fully funded."

Multimillion-dollar error found in San Jose pension system - San Jose Mercury News
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Unread 01.13.09, 10:24 PM
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Multimillion-dollar error found in San Jose pension system

By John Woolfolk

Mercury News

Posted: 01/08/2009 07:10:00 PM PST




Though San Jose's pacs web viewer system cannot fully cover the costs of future benefits, many retired city workers are still expecting bonus checks for high earnings reaped before the recent market crash.
That extra bonus is under scrutiny now, and not just because the city's pension funds have lost more than $1 billion a quarter of their value in the meltdown. City officials have discovered a multimillion-dollar miscalculation that apparently caused thousands of retirees to be overpaid bonuses for several years.

"Multiple millions may have been distributed in error," said City Councilman Pete Constant, a pension fund trustee since 2007.
The council Tuesday will discuss the pension systems' overall health, which is of concern because the city's deficit-plagued general operating fund could be tapped to cover pension shortfalls.

City officials have yet to determine how much was overpaid in bonus checks, over how many years and whether the nearly 2,900 beneficiaries in the Federated City Employees' Retirement System will end up owing money to the city.

"No one wants to try to collect from retirees," said Retirement Director Russell Crosby. "Several options are being studied."
In the meantime, November bonus checks for those retirees have been delayed, raising concerns among many former city workers who rely on the extra money.

Bob Leininger, president of the San Jose Retired Employees Association,
said that "a lot of people are getting real nervous" and that he's "just telling everyone to relax" until all the facts are known.
Retired police officers and firefighters, who have a separate city pension system, are not affected and received their bonus checks in late November for earnings in the budget year that ended June 30, 2007.

And affected retirees' regular pensions monthly payments up to 75 percent of their former salaries also are unaffected by the overpayment issue. The problem concerns an extra benefit paid out as a "13th check" when earnings on the pension fund exceed their growth target, which was 8.25 percent for the Federated plan. The city puts 10 percent of net excess earnings into a separate reserve fund, from which a portion is paid to retirees as a bonus.

Payments in recent years have ranged from $1 million to $1.5 million, Crosby said. That's about $350 to $550 per retiree, depending on years worked and years in retirement.

The benefit is uncommon, say officials with San Francisco's pension system and with the California Public Employees' Retirement System. And Crosby, who managed private-sector pensions before taking over as San Jose's retirement director in August 2007, said it would be unheard of in the corporate world to pay earnings bonuses on underfunded systems.

Crosby discovered the error through internal audits he initiated after coming to San Jose. When several Federated plan reserve accounts were consolidated in 2005, one was shortchanged on earnings credits.
That resulted in overpayments to the reserve account of 3 percent in 2006 and 7 percent in 2007, Crosby said. Had the error not been caught, it would have caused an overpayment this year of 29 percent, or $2.3 million.

When pension trustees reviewed the situation in November, they asked the city administration to check back at least a decade for additional errors. They found another large overpayment in 1999. In addition, they discovered that another account for retiree medical benefits also had been shorted on earnings credit for "some period of time," Crosby said, further increasing the amount of overpayments.

Generally, waiving erroneous overpayments by the city would constitute an illegal gift of public funds. In recent years, San Jose employees who were overpaid during their military tours of duty had to repay the money after they returned.

But the retiree overpayments are more complicated, and legal issues are still being researched, said Senior Deputy City Attorney Mollie Dent.
Constant, a retired San Jose police officer who has urged greater oversight of the city's pension systems, questioned whether excess earnings bonuses make sense when the funds cannot cover their projected costs. At the most recent accounting two to three years ago, the funds' combined assets were enough to cover 92 percent of projected pension costs and just 8 percent of retiree health benefits.
"We need to look at how we define excess earnings," he said, "and see how we apply that at times when we are not fully funded."

Multimillion-dollar error found in San Jose pension system - San Jose Mercury News
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