Contra Costa County Grand Jury
• 2007-2008
Attention Special Districts! You Too Could Face Pension Plan Problems Other Special Districts Could Learn From Pleasant
⚠️ Translation Notice: This content has been automatically translated. The original English text is the official version. Translation may contain errors.
⚠️ Este contenido ha sido traducido automáticamente. El texto original en inglés es la versión oficial. La traducción puede contener errores.
Findings and Recommendations 24 findings
F1
The Pleasant Hill Recreation & Park District (District) was created by the voters in the District in 1951 pursuant to California Public Resources Code section 5780 et seq. The District covers approximately nine square miles, has approximately 22,000 voters, and provides parks, recreation facilities, open space, and recreation programs for District residents.
No recommendations for this finding
F2
A five-member Board of Directors (Board) governs the District. The Board is made up of five District citizens directly elected by District voters.
No recommendations for this finding
F3
The District’s 2007-2008 budget includes approximately $5.6 million in revenues, of which approximately $2.4 million is from property taxes on District residences and businesses. The District generates the balance through the provision of services such as sports activities, facility rentals, weddings, dances, and other functions.
No recommendations for this finding
F4
The District has 27 full-time employees, and also hires numerous part-time employees. The subject of this report affects approximately 1,400 former and current part-time employees.
No recommendations for this finding
F5
The District has well-kept parks and extensive recreation programs. A. The Former District Pension Plan
No recommendations for this finding
F6
Until 2004, the District, together with 10 similar districts across the state, invested funds in a pension plan on behalf of its part-time employees through the California Recreation District Employee Benefit Plan (Plan). An individual, who died in 2004, administered the Plan.
No recommendations for this finding
F7
The Plan was a 401(a) FICA alternative plan, in lieu of Social Security.
No recommendations for this finding
F8
The District’s elected Board provided minimal oversight of the Plan, its manager, funds, and investments.
Related Recommendations (2)
R1
Require the Plan administrator (PARS) to provide the District with quarterly, detailed financial and investment performance reports.
R3
Within three months of this report, adopt a Board policy to provide fiduciary oversight of the District’s part-time employee pension Plan, not less than quarterly, to monitor Plan performance, establish and review investment guidelines, and monitor pension Plan policies.
F9
An audit performed in 2004, after the death of the Plan administrator, found that approximately $700,000 was missing. Of that amount, this District’s share of the loss was approximately $283,000. After legal proceedings began against the administrator’s estate, a settlement was negotiated in which this District received approximately $40,100. 3
No recommendations for this finding
F10
When concerns arose, the District withheld approximately $17,000 from contributions it would have otherwise been required to deposit under the terms of the Plan. This sum, plus the $40,100 received by the District as part of the settlement resulting from the suit brought against the Plan administrator’s estate, has been deposited in the Local Agency Investment Fund (LAIF). The LAIF is an investment alternative available to local governments and special districts through the California State Treasurer.
No recommendations for this finding
F11
The District has adopted a method to disburse the $57,100 held in the LAIF to eligible employees. The District was awaiting cooperation from other affected districts, but has voted to proceed even if the other districts do not.
No recommendations for this finding
F12
Following the death of the Plan administrator, legal proceedings revealed that he was neither bonded, nor covered by a type of insurance upon which the District could make a claim.
No recommendations for this finding
F13
Not including the above-referenced settlement amount, approximately $155,000, plus interest, remaining in the former Plan belongs to the District. This District has attempted, without success, to get the other districts to cooperate in an apportioned disbursement of the Plan’s funds.
No recommendations for this finding
F14
The District has not secured the services of an agent to manage and distribute the funds remaining in the former Plan. Since some of the retired employees have reached the IRS mandatory withdrawal age of 70½, the absence of an agent to handle legally required distributions exposes eligible retirees to potential IRS scrutiny.
Related Recommendations (2)
R2
Within three months of this report, appoint a qualified employee to oversee the District’s part-time employee pension Plan.
R4
Within three months of this report, engage the services of a qualified agent to manage the funds in the former Plan, including the transfer of funds to qualified employees.
F15
The District has not replaced the money its employees lost due to the actions of the District’s Plan administrator. The District intends to replace only the money that was contributed by employees through their payroll deductions. The District does not intend to replace the money the District contributed to the Plan.
Related Recommendations (1)
R5
Within three months of this report, publish and implement a strategy to fully reimburse the part-time employees for the funds (employee and District contributions) lost due to the former Plan manager’s malfeasance.
F16
The District’s failure to replace the missing funds for its employees may result in tax problems for employees as they reach retirement age. Since the IRS has no knowledge of the missing funds, it may calculate mandatory minimum withdrawal amounts based on the total amount reported by the District for each employee. The District is aware of this potential. Some affected employees already have reached retirement age.
Related Recommendations (1)
R5
Within three months of this report, publish and implement a strategy to fully reimburse the part-time employees for the funds (employee and District contributions) lost due to the former Plan manager’s malfeasance.
F17
The failure of the District to replace missing funds for its employees may result in tax and /or legal implications to the District. The Plan was made available to part- time employees in lieu of Social Security. As with Social Security, the District has Plan funding obligations with which it has not complied. B. The New Plan
No recommendations for this finding
F18
On September 7, 2006, the District Board unanimously authorized the District manager to sign documents for the District that appointed Public Agency Retirement Services (PARS) as the 457(a) FICA (Social Security) Alternative Retirement Plan’s Trust Administrator.
No recommendations for this finding
F19
On October 2, 2006 the District’s General Manager signed an Agreement for retirement fund services with Phase II Systems, a California corporation, which does business as PARS.
No recommendations for this finding
F20
PARS is not licensed to provide advice on tax, accounting, legal, investment or actuarial issues.
No recommendations for this finding
F21
At PARS’ suggestion, the District’s General Manager signed a contract with Union Bank by which the bank will act as the trustee of the pension funds for the District’s part-time employees.
No recommendations for this finding
F22
The Union Bank contract does not include effective limits on fees that may be incurred by the bank and charged to the District.
No recommendations for this finding
F23
The Union Bank contract permits the bank to make potentially risky investments, such as investing on margin (depositing only a small percentage of the funds actually at risk), and investing in its own paper (investing in the bank itself). Current District practices preclude that from happening.
Related Recommendations (1)
R6
Continue to closely review proposed investment selections to ensure that pension funds are not invested in potentially risky instruments such as margin accounts or commercial paper issued by the trustee bank.
F24
The Union Bank contract permits oversight by the District, including investment options. The District Board has not done so. CONCLUSIONS
No recommendations for this finding
Conclusions 5
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CL1 Page 5The District’s Board and its General Manager provided inadequate oversight of the former pension Plan, especially with regard to securing regular audits, and detailed financial status and performance reports from the Plan administrator.
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CL2 Page 5The District’s Board took, and continues to take, too much of a hands-off approach to the oversight of both the former and current District’s pension plans.
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CL3 Page 5Despite the losses incurred as a result of inadequate oversight, the Board still does not recognize the propriety of regularly and closely monitoring Plan financial status and investment performance, as well as establishing and monitoring pension Plan policies.
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CL4 Page 5The District’s Board has authorized the General Manager to enter into a trust agreement with Union Bank that could disadvantage the District. Thus far, this has not occurred, but the District must carefully monitor investment selections. 5
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CL5 Page 6The District’s Board does not appear to have seriously considered the obligation it has to reimburse the affected employees for the District’s pension contributions that were lost as a result of the former Plan administrator’s malfeasance.
No Responses Found 1
Government entities assigned to respond to this report. No response documents have been linked in our database.
Pleasant Hill Recreation and Park District
Special District