State launches public campaign to unearth pension fraud
File photo by Steve Myrick
The Public Employee Retirement Administration Commission (PERAC), a state agency that oversees public retirement benefits, has launched a new campaign to prevent fraud and enlist the public's help in unearthing abuse.
In public service announcements, PERAC has outlined the most common ways people defraud taxpayers, and publicized a toll-free hotline intended to make it simple for people to report suspected pension fraud.
"Your information will be kept confidential," Joseph Connarton, PERAC's executive director, said in a statement. "Remember, by taking the time to call, you will be protecting taxpayer dollars."
Noreen Mavro-Flanders, chairman of the Dukes County Retirement Board and longtime county treasurer, told The Times she knows of no fraud cases uncovered on Martha's Vineyard. She said the retirement board will post information from the anti-fraud campaign, and distribute the material to local governments that take part in the pension system.
"Board members will take them back to their units," Ms. Mavro-Flanders said, "so that everybody is aware of what the hotlines are. There's usually something in each town hall."
State officials said public pension fraud falls into four basic categories: submission of falsified records; submission of falsified affidavits; disability retirees working in excess of limitations in the private sector; and retirees working in excess of the limitations in the public sector.
Submission of falsified records can include fraudulent birth certificates, divorce decrees, medical records, or accident reports.
Submission of a falsified affidavit most often happens when a retiree dies, or their life changes in some way that might affect benefits. Each year every retiree, and survivors of retirees who died, submit confirmation of their status. If they file a false affidavit, or they are not authorized to sign it, state officials will investigate.
There are limits on income for retirees who work in the private sector. In general, if private sector income is added to the pension benefit, it cannot exceed the level of pay at retirement, plus $5,000. If a retiree exceeds the limit, the pension could be reduced or suspended. Each retiree must file annual income statements.
The state limits retirees who work for state or local governments to 960 hours of work each year. Their income, when added to the pension benefit, cannot exceed the current salary for the position from which they retired. Underreporting that income, or failing to tell a public sector about retirement benefits, is cause for an investigation.
The material distributed by PERAC includes a confidential tip line (800-445-3266) and an email address (firstname.lastname@example.org) to encourage people to report suspected pension fraud.
In its news release, PERAC said it has identified $22 million in benefits paid to disabled retirees who earned more income than allowed by law, and helped local retirement boards to recover part of that money. The state commission also said its fraud-prevention efforts saved $28 million it would have paid to retirees who received disability payments, but were physically able to return to their jobs.
The Dukes County Retirement Board is a five-member body that oversees the pension system for all local, regional, and county government bodies. Ms. Flanders is an ex-officio member of the board, by reason of her position as Dukes County Treasurer.
County commissioners appointed Roger Wey, director of the Oak Bluffs Council on Aging, and a former county commissioner, as their representative to the retirement board.
Sharon Willoughby, Edgartown town treasurer, is appointed by the county advisory committee.
Edgartown police officer David Rossi and West Tisbury police sergeant Jeffrey "Skipper" Manter, who is also a selectman, are elected by local participants in the pension system to represent retirees.
For the past two decades, local towns and government units have paid into the system to cover unfunded liability. Until the state reformed the system with legislation in 1987, there was not enough money set aside to pay future retirees.
"That's because the system became a system in 1940, and they didn't start paying an employer's share until the late 1980's," Ms. Mavro-Flanders said. "You've built up a huge liability in that time."
Bill coming due
Unfunded liability for Dukes County amounts to $37.3 million. Every two years, an actuarial study determines how much each local government must pay to catch up with the liability for their future retirees. The Dukes County retirement system is on schedule to be fully funded in 2028. By that date the system will have enough money to pay the retirement benefits it has promised employees.
In 2002 the total appropriation for the pension system from local governments was $2.1 million, and increased to $4.7 million in 2011. Over the same period, the fund's assets increased from $30 million to $68 million.
Ms. Mavro-Flanders said going forward, each employee contributes enough to cover their own future retirement benefits. Each employee contributes 9 percent of their base pay up to $30,000, and 11 percent of the amount over $30,000 into the pension system.
"If they were hired at age 25, and they retired at age 55, they would be paying 115 percent of their own retirement," Ms. Mavro-Flanders said. "When we have people saying this liability is getting bigger and bigger and bigger, it's getting bigger because it's just like any other mortgage if you don't pay it. But the current employees are paying their own way. That makes it pretty nice for the towns, because they don't have to pay social security, because public employees don't get social security. Instead of paying their 6 percent for social security, they're paying what they should have paid for 40-some odd years, and nothing else."
According to the latest figures available from PERAC, the Dukes County system includes 713 people now employed, and 215 people receiving retirement benefits. Of the 215 retirees, 21 are retired with a disability.
The state law covering public employee pensions is the most amended law on the books, according to Ms. Mavro-Flanders, so there are many exceptions to the rules.
In general, public employees are eligible for retirement at age 55, or at any age after 20 years of public service. Most employees are not eligible for a pension until they have completed 10 years of service.
For most people, the amount of the retirement benefit is based on a formula that takes into account age at retirement, length of service, and base salary. In general, the formula takes the highest three consecutive years of salary to figure retirement benefits. The maximum benefit is 80 percent of that three-year average.
If a public employee is permanently unable to do the essential parts of a job, either from an injury on the job, or because he becomes disabled, he is eligible to apply disability retirement.
After applying to the local retirement board, and being examined by an independent doctor, a disabled retiree in most cases, is eligible for 72 percent of his annual pay.
PERAC can demand medical evaluations to confirm that a retiree remains disabled.
The average salary of current employees paying into the system is $42,600. The average benefit paid to retirees in Dukes County is $17,200.
Most retirees also receive generous health care benefits in addition to their retirement benefit.
On September 30, assets totaled approximately $68 million. That covers retirement and disability benefits, as well as the cost of administration for the pension system.
The Dukes County Retirement Board is responsible for investing the pension fund's money. The board hires an investment consultant to recommend a balanced portfolio, screen investment managers, track the rate of return and issue quarterly reports.
The board assumes a rate of 8 percent to fund current and future liabilities.
"If we don't make that, we still have to be fully funded by 2028," Ms. Mavro-Flanders said. "We work hard to reach that, so it doesn't affect the town budgets."
For the latest year available, the Dukes County retirement fund earned a 14.2 percent return on its investments.
The state will not allow local retirement boards to invest poorly. They stipulate a level of investment return, based on the return of its own retirement funds, the Pension Reserve Investment Trust (PRIT). If local retirement boards fall below the required level of return, they must turn over their investment strategy to the state system.
"PRIT has been having a tough time lately," Ms. Mavro-Flanders said. "We've been beating their rate of return, so we're not concerned about that."