By Chris Frost
Oxnard— The Finance and Governance Committee for the City of Oxnard received an update on the City Corp retirement plan liability for budgetary purposes April 9 and endorsed bringing the update to the full city council.
City Manager Alex Nguyen made the report to the committee and told the group he first mentioned the problem last fall.
When he arrived last year, he fully expected, “even with all the information available” about the city’s challenges, there would be landmines to deal with quickly.
“Not to mention a few banana-peels that people would throw along the way,” he said. “This is one of those landmines we are now stepping on.”
In Jan. 1992, the city, which needed to handle the temporary employee retirement plan, established a 457B fund that served as a substitute for social security for employees not expected to be covered by CalPERS, the state’s public employee retirement system.
In 2015, he said his predecessor utilized Management Partners to have assessments done for the organization and they determined the 457B fund did not meet the minimum requirement for benefits to those employees instead of mandatory social security coverage.
“Last summer, the city engaged an expert law firm; Pillsbury Winthrop Shaw and Pittman to review these cases and in the early fall, they also brought on Altman Cronin, consultants, to calculate those benefits accrued under that retirement plan,” he said. “Between 1998, up until now, some part-time City Corp employees worked enough hours during a fiscal year to make them eligible for CalPERS service credit.”
He called it a “nice way” to describe what happened.
“What this means is that those employees and their hours were not properly managed to stay under the rule, 1,000 hours, and keep them as strictly part-time temporary employees,” Nguyen said.
The city did not enroll those employees in CalPERS when they exceeded the hours' threshold.
“Last fall, we had to pay $237,708, in retroactive contributions to CalPERS, and that included a late fee of $500 per member for specific City Corp employees,” he said. “We had been conducting a review of the payroll reports going back to 1998, and we’ve identified an additional 166 employees who throughout those years exceeded the 1,000-hour limit within a fiscal year.”
He said that would cost the city approximately $1.9 million.
In 2015, he said the city adopted a new 457B plan specifically for seasonal/temporary employees that are not under CalPERS and complies with social security requirements. “We are currently working with Pillsbury and with Altman Cronin to figure out how to unwind the 1992 plan. We are still analyzing the data and expect to complete that sometime this year.”
Nguyen said the city would pay the money back to CalPERS in 2020.
“The cost of unwinding the 1992 plan, we are still looking at that, and we expect it to cost us in the hundreds of thousands of dollars, but not in the millions,” he said.
In the future, the human resources department will provide each department with a monthly report, he said, that details the temporary workers total hours.
The city currently has 500 temporary employees.
“The departments are expected to schedule their staff, so the threshold is not breached,” he said. “It is now an active management and accountability issue for your department heads.
Human Resources actively reviews the reports to make sure we enroll an employee if we exceed the threshold in any fiscal year.”
Committee Member Gabriela Basua asked if employees still exceed the 1,000-hour threshold.
“I know it’s a difficult task, but moving forward, we are going to try and assure that we don’t have employees go over 1,000-hours because that is going to continue to accrue.”
Nguyen said managing the issue is a task, but not a difficult one.
“There is no rocket science to this,” he said.
Committee Member Bert Perello asked what it means to unwind the issue, and Nguyen said it must be dissolved.
“While we are unwinding the old plan, it was replaced by a new plan in 2015 that is compliant with social security standards,” he said.
Perello said the city employed a lot of law firms, but there are still problems.
“What would be the ramifications if this happened in the private sector,” he asked. I have an assumption.”
Assistant Chief Financial Officer Donna Ventura said the first thing is to correct the problem and do a root cause analysis so they can understand what lead to the problem.
“Then we would implement stronger controls to make sure the problem doesn’t happen again,” he said.
Mayor Tim Flynn said the city is still dealing with issues that go back 30 years.
“When this was first brought to my attention, all fingers pointed to the former director of City Corp,” he said. “It could have been put together, and staff did not watch what hours were worked, and somehow that was completely and absolutely mismanaged.”