SANTA ANA, Calif. - The $2.5 billion Orange County Employees Retirement System filed suit to collect $10.4 million from the county. And despite county pleas for a delay, the pension fund also invoked state constitutional powers that some government officials claim will give the pension fund more autonomous authority over pension assets.
The suit, filed Feb. 14 in U.S. Bankruptcy Court, charges the county hasn't turned over to the pension fund $10.4 million in pension contributions, $6.6 million of which the county has collected from employees since the county filed for Chapter 9 bankruptcy Dec. 6.
The money the pension fund is seeking in the suit is in addition to the estimated $110 million the pension fund is demanding be paid from a county investment pool that filed for Chapter 9 bankruptcy, said Terry Slattery, senior investment officer with the pension fund.
The $110 million includes $65 million raised from the issuance of pension obligation bonds that was supposed to pay off the unfunded liability of the pension fund.
Pension fund executives temporarily parked the $65 million in what they thought was a separate investment pool managed by former County Treasurer Robert Citron, who subsequently resigned in disgrace.
Separately, in a number of resolutions, the pension board has effectively declared independence from the county by invoking powers contained in the state's Pension Protection Act or Proposition 162.
County officials said they were surprised at the pension board's declarations of independence; before the board took action on a resolution broadening the pension fund's authority, the officials asked for a delay on voting on the resolution.
However, pension board trustees - who voted 7-1 in favor of the resolution - said their actions were necessary to comply with their fiduciary responsibilities.
The resolution stated: "All money of OCERS be held under the sole and exclusive possession, custody and control of the board of retirement and its designated agents; that the treasurer immediately turn over to OCERS all funds of OCERS presently under his possession, custody and control; that OCERS enter into a direct custodian agreement with an authorized trust company for the receipt and administration of OCERS' assets."
Under the action, the county no longer will serve as the fund's paying agent or auditor controller. The pension fund also revoked the county treasurer's right to hold pension fund money.
"The board realizes that their main focus is to serve the membership of the system and preserve the assets," said Mr. Slattery.
Because the county did not turn over pension contributions for January and February, the pension fund has twice had to "cash out" investments to meet its benefit obligations, a total so far of $16 million, said Mr. Slattery.
Approved in 1992, the Pension Protection Act makes pension boards more autonomous and less accountable to government employers.
The act gives pension boards exclusive authority over investment and management decisions. The act also requires pension boards to put increased emphasis on providing benefits to participants. It also allows boards to hire their own actuaries to calculate contribution rates.
Observers believe the Orange County pension fund is the first county fund in California to actually invoke powers of the act, and that could set a precedent for other funds. (The $80 billion California Public Employees' Retirement System, which has invoked the powers, is a state fund.)
Some county funds have assumed more authority because of the act, but haven't formally taken notice of the mandate.
Supporters of the Pension Protection Act said it would stop government employer raids of pension assets. The act was devised following what some described as a $1.9 billion raid in 1991 on the $80 billion California Public Employees' Retirement System.
However, in a resolution passed by the Orange County fund's board Feb. 14, the pension board faulted the county for, among other things, not honoring pension system directives in investing the $65 million in pension obligation bond money and for failing to turn over pension contributions.