Paying for pension error

A software glitch that caused Orange County to underfund its employee retirement system for nearly a decade will require it to increase pension contributions by $6 million to $7 million annually beginning in 2011 to make up the shortfall, officials said this week.

The software error caused the county government and other agencies to under contribute to the pension fund by $228 million since 2001, when faulty coding was put in place; it did not account for special pay some employees receive in addition to their base salaries. The problem was discovered and corrected earlier this year and disclosed to the Orange County Board of Supervisors on April 12.

An increased payment amount of $7 million per year is only about 1% of the county’s annual discretionary budget of $700 million, but it will be a tough figure to swallow at a time when county departments have already slashed their budgets by around 10% since the recession began.

The county will begin making the increased payments in July 2011 because the contribution schedule until then has already been set, said county spokesman Howard Sutter.

It will take payments of $6 million to $7 million more per year to make up the difference if the Board of Supervisors decides to spread the payments over 15 years, he said. The board could elect to spread payments out over a shorter or longer time period, which Sutter said would change the amount of the annual increase.

Supervisors are scheduled to receive a briefing on the issue at their Tuesday meeting.

Less than half of the $228 million shortfall is for county employees and must be made up by the county government; the rest will come from agencies with separate budgets, such as the OC Transportation Authority, OC Fire Authority and the court system.

No retirees have been underpaid for their pensions, according to OCERS officials.

County employees with in-demand skills or special assignments — such as bilingual employees, paramedics or cops who ride motorcycles — earn extra pay, but that extra pay was not accounted for in the contributions county agencies were making to the pension fund. Pension amounts are based on employees’ salaries, so such an error creates a situation where the county will owe retirees money it hasn’t set aside.

OCERS Chief Executive Steve Delaney told OCLNN last month that the error occurred because OCERS’ pension administration software uses one data set for employees’ regular pay and another for special pay. But in generating its annual report for analysis by an actuary to make sure pensions are properly funded, the computer system was accounting only for the regular pay data.

Delaney said the error disproportionately affected agencies that have more employees receiving special pay.

“An agency such as the Orange County Sheriff’s Department is more likely to find its employees at times in unusual and stressful situations that will require premium payments,” he said. “An agency like that would be more heavily impacted by finding that those premium payments had not been correctly forecast into the agency’s pension contribution rates.”