Sacramento miscalculated years of pension payments for some city retirees

The letters came without warning, notices from the city of Sacramento alerting retirees to an unsettling reality: For years, their pension checks had been wrong.

About 5 percent of the 1,141 retirees that remain in the old Sacramento City Employees Retirement System, or SCERS, learned they had been underpaid for as long as a decade.

Others, nearly 18 percent of SCERS recipients, had been overpaid. And, the notices said, the city had the right to demand that money back.

Some retirees told The Sacramento Bee they saw thousands of dollars in extra cash coming in year after year.

“What the city has done for that many years sets a precedent,” said former water and sewer employee Steven Brachais. “They’re calling it a miscalculation and a clerical error. Excuse me, but for what? Thirteen years? With retirees, every penny counts. They gave bonuses to some and left the rest of us out in the cold.”

Combined, the city overpaid by $2.8 million and underpaid by $247,000 over the last three years – the time frame examined by an outside audit. But the mistakes are believed to have occurred since at least 2005.

Officials said the city’s financial mismanagement of SCERS was first discovered in a routine audit of the city’s finances in July 2013. In a random sample of retiree benefits, 13 cases were examined. Of those, auditors at Bartel Associates Inc. reported, just two had no issues at all.

“The remaining 11 had issues serious enough that the retirement calculation was incorrect in some way,” the audit states. “This would appear to be a serious oversight in the benefit calculation process, and is likely resulting in benefits that are not being paid in accordance with the terms of the City Charter.”

Several issues contributed to the miscalculations, a subsequent audit found, including human error and city employees being unfamiliar with the SCERS system. The most egregious was that the city had not reduced pension payments at age 62 for early retirees, a change that is supposed to account for the start of Social Security income.

In the time since, city officials said, changes have been made to the SCERS system to prevent future errors, pension plans have been adjusted, and hundreds of former Sacramento employees signed a settlement agreement that ensured they wouldn’t be forced to return the overpayments to the city if they gave up their right to sue.

“The city shall waive the overpayment of benefits to each claimant who signs a release and delivers it to the city” by June 30, the settlement said. “The city will pay each claimant a lump sum amount reflecting the underpayment of benefits over a three year period plus 6.5 percent interest upon receipt of a release.”

All SCERS recipients affected by the errors will see their retirement checks change starting Aug. 1.

About 10 percent of the people affected by the city’s mistakes refused to sign the agreement. Brachais was one. He said he felt cheated out of the accidental bonuses received by others.

But many of those who were overpaid lamented that they have to adjust their spending habits and lifestyle to accommodate a smaller paycheck they had not expected.

“This was a bona fide disaster for some people,” said former Director of Labor Relations Dee Contreras, a retiree who now sits on the board of the Sacramento Retired City Employees Association.

Contreras, who is a part of a different pension plan, negotiated with the city on behalf of SCERS recipients.

“People sat in front of me and cried and talked about how they weren’t going to be able to live,” she said. “One man said he was trying to tell (the city) that something was wrong for four years. And they said, ‘Don’t worry about it,’ so he finally bought a piece of property and moved into a house with that money. Now, he said, he’s not going to be able to pay his mortgage.”

Those who were being underpaid will have their pensions adjusted up; those who were overpaid will see theirs adjusted down.

“I’m going to be taking a $70 deduction,” said retired dispatcher Luellen Pettengell, the president of the Sacramento Retired City Employees Association. “Some people are going to be seeing hundreds of dollars come out of their checks each month. I’m one of the lucky ones. I can handle a $70 decline in a pension. There’s going to be some people who won’t have as easy of a time making ends meet.”

The most notable error was the failure to reduce paychecks at age 62. For more than 200 early retirees, that never happened.

Those who retired after age 62 automatically had their pensions reduced to account for Social Security. But those who retired before age 62 were supposed to have their benefits adjusted later.

Several retirees said they told the city about errors with their checks. Some, who had anticipated an offset when they turned 62, said they were afraid the city would ask for the money back.

Others had no idea anything was amiss. The first they heard of it was when the letters went out in May.

“It’s like a shotgun wedding with the pressure the city’s put on us,” said a 62-year-old retired utilities worker who declined to be named out of fear of retribution. “If I sign this thing, I’m giving them permission to cut my pension. If I don’t, they can do it anyway and then ask me to pay them money back after they screwed up.”

Human Resources Manager Ken Cosgrove said it’s “unclear” how long pension recipients had been over- and underpaid. City spokeswoman Linda Tucker said 202 retirees were overpaid a total of $100 or more, and 61 were underpaid $100 or more. The city wouldn’t specify exact amounts.

The money used in the overpayments came out of the SCERS retirement fund, which was grown from contributions of city workers and the city itself. About 20 current employees are still paying into SCERS. All other city employees are covered by the California Public Employees’ Retirement System.

Sacramento in 1977 began to move employees to CalPERS’ system, so SCERS only serves those hired by the city before then.

Besides the Social Security mistake, issues discovered in the audit included incorrect payments based on an outdated gender adjustment related to women’s longer life expectancy, human error while inserting data into spreadsheets, missing paperwork and inaccurate calculations.

Cosgrove said the administration of SCERS has been shifted to the city’s finance department and that an employee would be designated to handle that system, specifically, in an attempt to mitigate future errors.

Overpaid retirees who refused to sign the settlement may be vulnerable should the city decide to collect misspent money, Contreras said. Underpaid retirees, like Brachais, who refused to sign the settlement reserved their right to sue the city for money lost in the mix-up.

“It’s a value judgment,” Contreras said. “If (the city) is willing to give you $3,000 now, and you think you’re entitled to $5,000 total, sure you can sue. But they’re not going to pay you that until litigation is over.”

But Brachais said it’s the principle that matters.

“Everything ought to be fair,” he said. “I put my time in, these people put their time in; we all deserve what we’re owed.”

City officials declined to discuss the terms or consequences of the settlement agreement, citing potential litigation.

This story was originally published July 18, 2015 at 2:11 PM with the headline "Sacramento miscalculated years of pension payments for some city retirees."