Unsigned Citizen Complaint: Auditor's Trust Fund

This finding describes the process with time lines regarding the County employee retirement fund, administrated by the John Hancock Mutual Insurance Company (JH), through the sale of stock generated by an Initial Public Offering (IPO) which was then received by the County, sold and Journal Entry of said funds into the General Fund. The stock that was received by the County from JH and subsequently sold which amounted to $448,075 was received on February 10, 2000. A dividend of $364,929 was received on January 1, 2001, bringing the total amount received by the County of $813,004, which was deposited into the Auditors Trust Fund. On February 22, 2001 the BOS authorized the prepayment of several debts amounting to $240,786, which was taken from the Auditors Trust Fund leaving a balance of $572,218. On June 29, 2002, as a consequence of implementing a new financial government reporting model, the remaining balance of $572,218, by Journal Entry (JE), was deposited into the County’s General Fund. CONCLUSION #1: The Grand Jury is pleased that Trinity County was the benefactor of stock as a result of the John Hancock Corporation IPO resulting with $813,004 cash being received. The Grand Jury is also satisfied that all County procedures and policies were followed regarding the sale of stock and the transfer of monies into the General Fund.

This finding describes the process, time lines, and procedures of the County’s participation in the employee retirement funds, the financial obligations of the Taxable Pension Obligation Bond (see part A ) and the Over/(Under) Funded liabilities of CalPERS (see part B ). The BOS authorized in August 1993 that all County employees switch from the John Hancock retirement fund to CalPERS. When this occurred, the County guaranteed by the issuance of a Certificate of Participation with CalPERS that, first, all employees would be enrolled in CalPERS, secondly, the County would guarantee the retirement of all employees and, thirdly, the County would obligate itself to keep its contribution(s) to CalPERS within guidelines. The addition of all County employees to CalPERS, by the BOS, resulted in successive years of differences between the ‘Projected Net Assets Available For BenefitsColumn “A” below’ and the ‘Projected Pension Benefit Obligationscolumn “B” below’ which might result in an ‘Over/(Under) Funded Projected Benefit Obligationse column “D” below’. The County contributes funds to CalPERS who immediately deposits those funds into its overall investment accounts. Notwithstanding the monthly County contributions to CalPERS, its changing investment value also varies day-to-day, and therefore the value of the County’s portion also changes value. Each year CalPERS estimates the County’s participation value (see column “A” below) as well as the actuarial value of the County’s benefit obligations (see column “B” below), which results in the amount of projected Over/(Under) Funded liability (see column “D” below. Column “A” represents the projected value of the funds the County contributes each pay period and any additional funds as invested in CalPERS and as projected to be available for employee benefits. Column “B” represents the projected value of the County’s Benefit Obligations as projected to be available for employee benefits. Column “C” represents Percentage Funded Column “D” represents the Over/(Under) Funded amounts The addition of ALL County employees to CalPERS, the declining value of the County’s participation value relative to its benefit obligations and the ever-increasing Under Funded Liability brought about certain subsequent activities. The Committee was informed that if there were any Under Funded Liability obligations then a ‘smoothing formula’ would be put into effect so that the County’s monthly contribution would be increased in order to keep the Under Funded liability to as close to zero as practicable. The County continued its yearly funding contribution obligations until 1998 when the BOS authorized a bond to be issued (see chart ) in the principal amount of $9.14 million to equalize the difference between Assets Available for Benefits (see column “A” above) and Projected Pension Benefit Obligations (see column “B” above). The resultant net bond amount of $8,773,390, after subtracting issuance costs, was deposited with CalPERS who immediately added the funds to its investment portfolio in the County’s behalf. The total payback of principal and interest over the 20-year period of the bond will be $17,710,767. The Grand Jury noted that in fiscal year 2017 a bond payment of approximately $1.4 million is due and payable by the County. This bond amount is more than twice the amount due in fiscal year 2003. CONCLUSION #2A: The BOS authorized the bonds in the amount of $9.14 million to be added to the funding of CalPERS in one step in lieu of many small steps instead of relying on the ‘smoothing formula’. The funds, which the County pays to CalPERS, are immediately added to the CalPERS investment portfolio, which fluctuates with the commercial investment market. The County should be proactive in evaluating CalPERS’ future. The 1998 BOS authorized the long-term bond, which cannot be changed over time with a 20-year fixed payout feature, whose funds are then entered into a variable investment. The Committee has received information indicating the CalPERS investments themselves could diminish. The County would then be required to add more funds to prevent under funding. The County, due to the fluctuating investment market, should evaluate its financial responsibilities monthly. The County should not simply rely on additional bond funding to alleviate any potential problem. FINDING # 2B: The Committee evaluated the years (1993-2001) wherein all County employees were enrolled in CalPERS and then compared the results of the ‘smoothing’ formula (see CalPERS Actuarial Information table above). The Committee noted that an immediate under funded liability occurred (1993) which built up to a high of $8.6 million in 1996 and decreased to $5.865 million (1997) or a $2.7 million reduction in one-year. The BOS authorized a $9.14 million bond, which over funded the CalPERS account by $3.849 million and it still remains over funded as of 2001. The Committee noted that the County is obligated to pay off the bond (see chart ) while at the same time the County has over funded its CalPERS requirements. CONCLUSION #2B: The Committee recognized that the $9.14 million bond over a payoff period of 20 years would cost the County $17.71 million including principal, interest, and cost of issuance. The County was not required to over fund its contribution account and therefore did not need to pass such a large bond, or possibly other means of funding could have been implemented which would have eliminated the need for a bond altogether. The Grand Jury recognizes the complexity and ever changing potential political and budgetary forces competing for County tax funds. The Committee also recognizes that IF ALL procedures were met on a ‘year-to-year’ basis regarding the amount of funds given to CalPERS to meet County requirements, there still is the uncertain investment market forces which can change its funding obligations dramatically. Considering the ever changing forces which affect the CalPERS investments and hence the County’s share thereof (some of which are in the millions of dollars per yeartables listed above) the BOS should monitor the accounts closely.

I do not have enough information to agree or disagree. It was not the intent of the county to "overfund" PERS when issuing the bonds. They were issued for the amount that PERS calculated as an un-funded liability, at the time of issuance. As mentioned in the report, the over-funding shown in subsequent years demonstrates how, changing market conditions, long delays in PERS actuarial calculations, as well as other factors can change over or under funding in a given year.