Saturday, June 12, 2010

Grand jury report criticizes Retirement Association; Sakowicz threatens lawsuit

By Mike A'Dair/TWN Staff Writer
Updated: 06/11/2010 11:37:41 AM PDT

A Mendocino County Grand Jury report critical is calling for establishment of a financial oversight committee to monitor the effect of Mendocino County Employees Retirement Association board transactions on the county.

The grand jury report said in 1996 the county authorized the issuance of $30.7 million in pension obligation bonds, and followed up with an issuance of $92 million in bonds in 2002.

Mendocino County, the report said, is "one of the few 1937 Act counties where excess earnings from investments have continued to be used to provide health insurance funding for retirees."

Supervisors voted to discontinue that practice in April of this year.

The grand jury report found the MCREA actuary uses "smoothing" to round off the short-term impacts of stock market volatility and pointed out association has based its financial assumptions on an 8 percent return on investment projected through the year 2026, whereas "economic experts have said the 30-year rolling average for a stock market portfolio is 4.4 percent."

The report offers seven recommendations to MCERA and the county, including the establishment of a citizens' financial oversight committee to monitor the work of MCERA and the retirement board.

The grand jury also suggested the MCERA administrator pay more attention to the "impact of the retirement fund on the county budget, rather than comparing [its financial performance] with that of other counties."

It also wants MCERA financial reports to be structured so "both the actuarial value of assets and the market value of the pension fund assets [can] be made public."

One of the potentially most explosive findings in the report is that "from 2004 to 2006, MCERA diverted over $9.6 million from the county pension fund to pay retiree healthcare costs."

It report states "this was a questionable action; MCERA devised this as a way to solve funding issues for a shortfall in retiree health care. It may have been in conflict with California Government Codes Section 31584 and Section 31587."

Locally based independent financial analyst John Sakowicz warned the board of supervisors Tuesday he is planning to sue MCERA in connection with that $9.6 million, and asked the board to join him in the lawsuit.

Sakowicz said he believes former MCERA Administrator Tim Knudsen diverted the money from MCERA to pay for retiree healthcare benefits, then balanced the books by claiming "unrealized actuarial gains," which Sakowicz claims is tantamount to inventing the money.

In a separate discussion with The Willits News, Sakowicz likened Knudsen's alleged action to that of Bernard Ebbers, former CEO of communications giant WorldCom, who was notorious for capitalzing expenses. "What should have been a liability was turned into revenue," Sakowicz explained, speaking of Ebbers' actions. "Basically, what he did was he didn't call it expenses."

Ebbers is currently serving a 25-year sentence in federal prison in Louisiana.

Sakowicz said he is planning discussions with County Counsel Jeanine Nadel, as well as with two supervisors, on this subject this week.

Tuesday, he asked the board to join him in the suit, warning if the county did not join him, it might find itself named as a defendant in the lawsuit.

No comments: