Claim says law violated by StanCERA board

$60M transfer is focus of group's complaint

By Ken Carlson
kcarlson@modbee.com

E-Mail

reprint or license

Comments (0)

Text Size:

tool goes here

A legal claim charges that the Stanislaus County Employees' Retirement Association violated state laws in April when its board decided to transfer $60 million from reserves to reduce employer contributions to the public service pension system.

Michael O'Neal, representing Retired Employees of Stanislaus County, filed the Sept. 22 claim against StanCERA and Stanislaus County. The potential litigation came to light Tuesday when county supervisors referred the claim to risk management.

StanCERA's board has not taken action on the complaint. Such claims are often a preliminary step in filing a lawsuit.

The retirees are challenging an April 28 retirement board decision, which came as the county faced a $22.7 million increase in its contribution to the pension system for retired employees of the county, Ceres, the Superior Court and five special districts.

County leaders said the cost burden would worsen a $34 million budget deficit in 2009-10, resulting in county employees losing their jobs and an unprecedented reduction in public services. The employers are expected to boost their annual contributions when the pension system is underfunded.

The retirement board, on a 7-2 vote, took $10 million from a fund for paying cost-of- living increases to retirees and applied it to employer contributions. In addition, it moved $50 million from a medical insurance fund into regular pension fund reserves, and that served to lower the county's obligation.

O'Neal wants that money restored to the original funds.

Some board members, in justifying their decision, said the reserves were for paying non-vested retirement benefits, or benefits that never were part of negotiated labor contracts. Those reserves were not being accounted for when experts evaluated the health of the pension fund.

Retirees were further angered when the board suspended cost-of-living payments for older members this year and, in July, decided to withhold a health insurance stipend from 2,500 retired employees next year.

"This issue is about raiding an employee pension fund, which is expressly prohibited in state law," said Michael Conger, a Southern California attorney who wrote the 12-page complaint.

He said a lawsuit could be filed in Stanislaus County Superior Court, asking that the money be returned to non-vested reserves and for an injunction to prevent transfers in the future.

Public pensions safeguarded

Conger argues that the transfers violated sections of the California Constitution, which state that the assets of public pension funds are for providing benefits to employees and that retirement boards are to represent the interests of their members.

Conger noted that voters statewide passed Proposition 162 in 1992 to safeguard public employee pension benefits, after government entities frequently "raided" pension funds to balance their budgets.

The retirees recognize Stanislaus County's budget situation, but "there are certain ways you can balance a budget and some ways you can't," the attorney said. "Counties have done a lot of over-promising to employees. ... But if you can't afford to grant the pension benefits, don't try to raid the fund to balance the budget."

StanCERA Administrator Tom Watson was unavailable Tuesday, and the board's legal counsel declined to comment.

Rick Robinson, county chief executive officer, said Tuesday he had not read the claim thoroughly and wasn't qualified to respond to every legal argument. The nine-member retirement board, which includes four county appointees and the county treasurer, was representing the interests of members, he said.

"What the claim fails to recognize is that current employees are also members of the retirement system," Robinson said. "Had the funds not been transferred to assist in reducing the employers' contributions, county employees who are active members of StanCERA would have lost their jobs."

StanCERA and the county have until early November to respond to the claim. One option would be to sit down with retiree representatives to discuss a remedy, Conger said.

Bee staff writer Ken Carlson can be reached at kcarlson@modbee.com or 578-2321.