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Old Mendocino County Courthouse Around 1915

California County Pension Debt

 

Stories & Evidence



The Retiree Healthcare Benefit



Stories and Evidence


Choices -

Who Done It?

'98 Retiree Healthcare - '02 Board Policy 40 - Diversion of County Contributions - Part 1

'98 Retiree Healthcare - '02 Board Policy 40 - Diversion of County Contributions - Part 2

'98 Retiree Healthcare - '02 Board Policy 40 - Diversion of County Contributions - Part 3

San Diego - IRS - Excess Earnings

Increase Pensions When Already Deep in Debt

Staffing & Compensation Chaos

Deeply Flawed Pension Fund Financial Statements - Part 1

Deeply Flawed Pension Fund Financial Statements - Part 2

Deeply Flawed Pension Fund Financial Statements - Part 3

Retiree Healthcare

Assumed Investment Profits Too High

Plans to Increase Debt

County Puts Off Bad News

The Myth of 80% Funding

Numerous Financial Errors

 

For years the County's policy was County employees hired before September 1998 who worked 10 years would get a very good health insurance policy in retirement and the County would pay a significant part of its cost. There are many very complex issues about whether or not this was a "legal obligation"; I take no position on that issue one way or another.

In fact I'm glad to see seniors with good healthcare - that's not my issue. My two main problems with what the County did are first - every dime they paid for retiree health benefits was paid for with long-term interest-bearing debt, and second - it turned out to be a lousy thing to do to retirees because the County never did what it had to do to be able to continue to provide the benefit.

The County never figured out how much money needed to be set aside until new government accounting rules issued in 2004 forced them to do so in 2008. They wasted 4 years in which they could have planned with retirees what to do. But they did nothing. They waited until the very last possible moment - two months AFTER they had to report the number - to finally receive a report from Aon Consultants about the financial condition of this benefit.

Aon Consulting Report on Retiree Healthcare Finances

Click here for a copy.

The County hadn't set aside a dime for this benefit. There should have been $136 million in the Retiree Healthcare Fund. Therefore the County had to report a $136 million unfunded obligation in its June 30, 2008 audited financial statements.

Over the next year the Retirement Association paid another $5 million of retiree health insurance from so-called "Pension Fund Excess Earnings" - simply increasing the County's interest-bearing debt dollar for dollar.

But the Retirement Board was staring a $130 million Pension Fund shortfall in the face and decided they couldn't pay any more retiree health benefits.

Twice during the 12 years the 1998 County Retiree Healthcare Policy was in force conditions arose that would require retirees and the County each to pay half the cost of retire healthcare. But they never did it.

The first time was when the County Board of Supervisors allowed MendoCERA to divert over $6 million from the County's Normal Contribution to the Pension Fund to pay retiree healthcare instead of abiding by its own policy. This second time the Board of Supervisors simply walked away from the Policy established 12 years before. They terminated their obligation to contribute to this benefit as defined in the 1998 resolution.

So - what was the point of that aspect of the '98 Policy?

Lawsuits

Retirees have filed lawsuits against other cities and counties in very similar circumstances. My sense of it is Mendocino County's retirees didn't do so because since we are the smallest of the 21 California counties with independent Pension Funds, then we have the lowest number of retirees. It would have cost a lot for retirees to bring such a suit.

I believe the legal situation in other jurisdictions remains cloudy - and mixed. My sense is Mendocino County's retirees wanted to wait to see what happened elsewhere so that if a positive judgment from their point of view was given they could try to get this benefit restored to its former value at a much lower cost to themselves.

But frankly that's conjecture on my part.

It Was a Lousy Thing to Do

But there's no doubt in my mind that all this was a really - really lousy thing for Mendocino County and Retirement officials to have done - to retirees, current and future employees, and the People of Mendocino County.

Employees should never have been told the County would provide a retiree healthcare benefit unless the County was prepared to properly finance it - which they never came close to doing.

But it's clear hundreds of former employees believed the County had made such a promise - and they planned their retirements based on what they felt was a genuine commitment of the County to fulfill that promise.

This is a 14 minute video of retirees telling the Board of Supervisors about their sense of betrayal, how they had been promised this benefit, and some of the dire financial impacts.

It's tough stuff. I was there - it hurt.

It would have been far better for the County to have told them the truth years ago - that they couldn't count of this benefit in retirement. But they didn't - and a whole lot of people have been hurt.

I'm the last speaker and I try to tell the retirees what's really happened to them - "financial mismanagment did this to you".

What were County officials thinking all the time the '98 Policy was in effect - or when it was established. Did any financial officials provide competent projections of what would happen in a recession? Did anyone raise a red flag about the diversion of phony "Excess Earnings" to pay this benefit? Where were the unions who had bargained for these benefits - why didn't they raise bloody hell on behalf of their members?

Was there no one in County government who could see what was going to happen? Did it matter? Did they care?



 
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