Retirees challenge StanCERA over $60M reserve shift

A retiree group has filed a lawsuit challenging the Stanislaus County retirement board's decisions in April to shift $60 million in reserves to ease the county's pension obligations for 2009-10.

Three members of Retired Employees of Stanislaus County brought the suit in Superior Court against the Stanislaus County Employees' Retirement System. An initial court date is set for April 12 before Judge William Mayhew.

StanCERA, at the county's urging, transferred $10 million from nonvested benefit reserves to help offset a $22.7 million increase in the county's annual contribution to the pension system. It also transferred $50 million of the supplemental benefit reserves into StanCERA's main fund, from which monthly pension payments to retirees are drawn.

StanCERA administers retirement benefits for employees of the county, Ceres, the Superior Court and certain special districts.

County officials said the $22.7 million burden would have forced them to lay off workers and cut public services. Officials stressed that the reserves are for nonguaranteed benefits, such as a medical stipend and supplemental cost-of-living increases, which never were part of negotiated labor contracts. The medical stipend was worth up to $370, depending upon a retiree's length of service.

According to the plaintiffs, StanCERA shirked its responsibility to manage the pension system on behalf of its retired and active members.

"I believe these decisions were for the benefit of the county," said Dennis Nasrawi, a retired county employee and member of Retired Employees of Stanislaus County. Nasrawi, RESCO President Michael O'Neal and Rhonda Biesemeier are listed as the plaintiffs.

County budget could be impacted

Local retirees were upset when the StanCERA board suspended a supplemental cost-of-living increase for older members and the health care stipend for 2010.

RESCO has a membership of slightly more than 2,000 local government retirees in Stanislaus County and is part of a coalition of retired county employees in California.

StanCERA Administrator Tom Watson said Wednesday he was not authorized to comment on pending litigation. The Reed Smith law firm of San Francisco, which is representing StanCERA in the case, also declined to comment.

County officials will watch the case because of its potential impact on the county budget.

"We believe that StanCERA has the authority to make the decisions that were made," County Counsel Jack Doering said. "On the face of the complaint, for now, they are not asking to put the funds back. They are not asking for anything to be undone."

The county counsel's office withdrew as StanCERA's legal counsel in October.

RESCO's complaint specifically asks the court for general and special damages and an injunction to prevent StanCERA from approving similar transfers in the future. "We are asking that the funds be put back in nonvaluation reserves," Nasrawi said.

Faulty assumptions made

StanCERA manages a $1 billion investment fund to pay retirement benefits to about 2,800 retired members and ensure it can meet pension obligations for existing employees when they retire. When there are excess earnings on investments, StanCERA has placed funds in "nonvaluation reserves" to fund the supplemental benefits.

This year, the county was expected to pump more money into the main pension fund because StanCERA's previous actuaries had made faulty assumptions about retirement patterns. Some StanCERA board members said the transfers were needed to safeguard vested pension benefits for existing government workers.

County retirees in Southern California lost a similar case heard in 2005 in Ventura County Superior Court. In that case, the court ruled that the Ventura County retirement system did not violate the California Constitution by using supplemental benefit reserves "to reduce or completely offset" Ventura County's contributions to the pension fund between 1998 and 2004.

RESCO also is suing StanCERA's previous actuaries, Buck Consultants, in the U.S. District Court in Fresno. That lawsuit charges that the firm's faulty projections about the number of employees who will draw benefits from StanCERA resulted in a shortfall of employer contributions to the fund in recent years.

RESCO says Buck should be held responsible for the interest that StanCERA would have gained from the contributions. A Buck representative was unavailable Wednesday.

Bee staff writer Ken Carlson can be reached at or 578-2321.

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