This staff error in California is why no one has respect for local government agencies, elected officials or staff.
Apparently, the Orange County, California government staff changed actuarial software in 2003, and they did not implement an audit to verify the new results from the software. The software was used to calculate the amount of funds the County should invest to pay for future pension costs of current employees. As a result of a programming error, the software UNDER-calculated the funds needed to fund their pensions since that date.
The resulting error means they have to find another $228-million NOW to offset the errors over the past few years.
The problem was reported to the County Board on April 12, which coincidentally is two days before the 1912 anniversery of the sinking of the Titanic. (due to my research).
Favorite quote:
"That’s on top of the county’s existing unfunded pension liability of about $3.1 billion."
He said OCERS needs to be more meticulous about auditing its books.
“What OCERS should be doing about every five years is auditing their actuary to make sure the actuary is coming up with the right numbers,” Moorlach said.
My own experience at Nissan Motor Corp. in Los Angeles was the same. During an audit I directed, we found the programmer who prepared the actuarial calculation program for pensions did not understand the actuary, and his programming formula OVER withheld about $1-million. We changed the formula, and transferred the non-required $1-million to the main checking account, and Nissan got an unexpected $1-million more in profits.
This is why we need smart, business skilled elected officials. Taxpayers cannot afford to keep electing "popular or likable" friends, or inexperienced candidates like school teachers, who have no clue how to ensure proper management and oversight is in place over government activities like the Lake County $400-million budget. Only when you get BIG organization competent elected officials will you get officials who have the smarts to hire a properly skilled County Manager who will improve systems.
Vance Jochim
Here is the article, sent to me by one of the County Commissioners there:
County discovers $228
million pension error
By Erik Holmes, OCLNN
What’s another $228 million, right?
The Orange County Employees Retirement System, or
OCERS, has discovered a software error that caused county agencies to
under-contribute to the employee pension fund for employees receiving special
pay, creating an unfunded liability of $228 million.
That’s on top of the county’s existing unfunded
pension liability of about $3.1 billion.
The OC Board of Supervisors was notified of the
error on April 12. The error has been in place since a software update in 2003,
according to OCERS, but it has now been corrected. No retirees have been
underpaid for their pensions, according to the agency.
Second District Supervisor John Moorlach said he is not sure how the county will address the
unfunded liability, and he has asked OCERS CEO Steve Delaney to brief the
supervisors on the situation.
He said OCERS needs to be more meticulous about
auditing its books.
“What OCERS should be doing about every five years
is auditing their actuary to make sure the actuary is coming up with the right
numbers,” Moorlach said.
County employees with in-demand skills or special
assignments – such as bilingual employees, paramedics or cops who ride
motorcycles – earn extra pay, but that extra pay was not accounted for in the
contributions county agencies were making to the pension fund. Pension amounts are
based on employees’ salaries, so such an error creates a situation where the
county will owe retirees money it hasn’t set aside.
Delaney said the error occurred because OCERS’
pension administration software, which was updated in 2003, uses one data set
for employees’ regular pay and another for special pay. But in generating its
annual report for analysis by an actuary to make sure pensions are properly
funded, the computer system was accounting only for the regular pay data.
“Thus, the salary being used to determine future
liabilities was under-reported,” Delaney said in an e-mail. “There was never a
problem in payment of benefits … but the data used by the actuary to project
future benefits was incomplete, and contribution rates did not capture as much
of the future liability growth as they would have.”
Delaney said the error disproportionately affected
agencies that have more employees receiving special pay.
“An agency such as the Orange County Sheriff’s
Department is more likely to find its employees at times in unusual and
stressful situations that will require premium payments,” he said. “An agency
like that would be more heavily impacted by finding that those premium payments
had not been correctly forecast into the agency’s pension contribution rates.”
Delaney said OCERS has not yet decided how to fix
the problem.
“There are a number of accounting process options
available for dealing with gains and losses as they occur each and every year,”
he said. “We are currently exploring appropriate funding methods with the
assistance of our actuary and will discuss those in more detail at our May
(OCERS) board meeting.”
If you have comments, news tips, questions or
story ideas, contact Erik Holmes at erik.holmes(at)oclnn.com or call us at
714-966-4505. And follow Erik on Twitter at http://twitter.com/erikOCLNN.
