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County suing over retirement board’s actions, withholding payment

By Sam Womack/Staff Writer

Santa Barbara County is suing the county retirement board and withholding payment of a supplemental health benefit to retirees until the conditions set forth in the lawsuit are met.

County officials had told the Santa Barbara County Board of Retirement that it would not take over payment of the health benefit unless two conditions were met.

The Retirement Board voted at the end of May to relinquish control of the nontaxed supplemental health benefit to the county, but it did not address the county’s conditions.

The lawsuit, which was filed June 13, included the Retirement Board’s rejection of a county proposal to create a 401(h) program and its actions regarding appropriately funding and allocating reserve accounts with “excess earnings,” according to Alan Blakeboro, counsel for the Board of Retirement and county CEO Mike Brown.

“Santa Barbara County has taken legal action to help resolve financial and legal issues related to the retirement medical program run by Santa Barbara County Employee Retirement Services,” Brown said.

The county offered to take control of paying a nontaxed health premium subsidy of $15 a month per year of service with the condition of a 401(h) program and that the Retirement Board stop transferring “excess earnings” to reserve accounts, Brown said.

The $15 health benefit subsidizes health care costs for retirees already on a budget and perhaps struggling with physical ailments, said Oscar Peters, administrator for the Santa Barbara County Employee Retirement Services (SBCERS).

“What we are most concerned with right now is that retirees not be harmed by this dispute,” Blakeboro said.

The lawsuit swiftly followed a May 28 Retirement Board meeting where the trustees voted to stop providing the benefit directly to retirees, and instead have the county pay the monthly insurance subsidy out beginning July 1, without addressing any of the other conditions set by the county.

One member, 4th District Supervisor Joni Gray, recused herself from the discussion and vote.

The county plan was presented to the Retirement Board in January, outlining conditions the county wished to place on a potential 401(h) account, but the board found cause to believe that the plan was “inappropriate,” Peters said.

The Board of Retirement Trustees was informed more than two years ago that its method of paying health insurance subsidies to its retirees was “likely not in compliance with federal tax laws” and must be changed, according to the staff report presented at the May meeting.

For the last several years, SBCERS has been paying the nontaxed health premium subsidy of $15 a month per year of service to retired members out of a reserve fund that held approximately $93 million as of June 2007.

Brown said the Retirement Board could continue paying the health benefit because not complying with federal tax laws “didn’t bother them until a month ago.”

However, Peters said the Retirement Board would deliver the benefit, but it would be taxed.

In order to help mitigate the cost of administering the health benefits, the Retirement Board created a $78.4 million reserve fund that would earn interest to be used to pay the benefit. The board also stipulated at the May 28 meeting that the fund could also be used if the county is ever unable to pay retirees’ supplemental health benefits.

This reserve fund and others were deemed “illegal,” Brown said, because the Retirement Board places funds in reserve even when it has hit a deficit. County rates are set by SBCERS.

“This non-legislative body is taking money out of people’s pockets,” Brown said.

Counsel for the Retirement Board Alan Blakeboro said SBCERS intends to vigorously contest the lawsuit because it has acted based on statutory and constitutional authority.

The retirement board also controls a $4 a month per year of service payment for retirees not participating in the county’s medical plan. This supplemental benefit would still be controlled by the retirement board because it is taxed and not specifically designated for health needs.

If the $15 supplemental health benefit must be administered by the Retirement Board, then it would be taxed in order to be in compliance with federal laws.

The board held a special meeting in closed session Monday to discuss the existing litigation with its legal counsel. The next monthly board meeting is set for July 23 in the Wisteria Room of Casa Nueva at 260 N. San Antonio Road in Santa Barbara.

Sam Womack can be reached at 739-2218 or swomack@syvnews.com.