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OC Retirement Board votes to pay off unfunded liabilities in 20 years

ocers_new_logoBowing to political pressure from the Orange County Lincoln Club and Supervisor John Moorlach, Orange County Treasurer Shari Freidenrich formally requested that the Orange County Retirement System trustees reconsider their June 2013 decisions regarding the amortization period for current and future unfunded liabilities when it comes to public employee pension. At Monday’s OCERS board meeting, Freidenrich made good on her pledge to Mr. Moorlach and fellow Trustee, Lincoln Club President Wayne Lindholm, to change her vote. She flip flopped and did.

O.C. Treasurer Shari Freidenrich
O.C. Treasurer Shari Freidenrich

In June, Ms. Freidenrich voted with the majority of trustees to follow the recommendations of plan sponsors including the two largest — the County of Orange and Orange County Fire Authority — and reduce the period to fund future liabilities from 30 to a 25 years, and to leave amortization periods for current liabilities as of December 31, 2012 unchanged. That vote so upset Trustee Lindholm, who wanted the period shortened to 20 years or more for future and current liabilities, that we’re emails show he sent Freidenrich a “draft message to voters accusing her of costing taxpayers $1 billion.”

OCERS Trustee Wayne Lindholm
OCERS Trustee Wayne Lindholm

As President of the Orange County Lincoln Club, Lindholm has the ability to direct the resources of the Lincoln Club PAC to damage her reelection chances in 2014. Moorlach “advised” Freidenrich that she should follow the lead of appointed trustees, like Lindholm, when deciding how to vote (which makes me wonder why she’s on the board at all).

Despite the evidence of political pressure revealed by emails from Moorlach and Lindholm obtained through public records requests, which were entered into the record by elected General Member Trustee Chris Prevatt at the October meeting of the OCERS board, Ms. Freidenrich claimed that it was her conservative principles that caused her to revisit the issue. Prevatt told Freidenrich that she should seek a new occupation “as a contortionist in a circus.” With her vote change, the OCERS board decided to reduce the time period to fund future unfunded liabilities by five years, to twenty.

Then the board moved to the discussion of what to do about the unfunded liabilities accrued through 2012, including the $934 billion the conservative trustees, along with Freidenrich, added to the bill by lowering the assumed earning rate from 7.75 percent to 7.25 percenrt in December 2012. There was a significant amount of discussion over how to address current liabilities. Mr. Lindholm, along with the other radicals on the Board wanted to reduce the time period to as low as 18 years, which would have added an additional 1.6 percent of payroll cost to employers in the first year.

OCERS Trustee Chris Prevatt

Following comments by newly appointed Trustee David Ball that indicated support for providing some limited relief to plan sponsors, Prevatt made a motion, seconded by Mr. Ball to re-amortize all current liabilities over a 20 year period.By collapsing all liabilities into a new 20 year layer, plan sponsors would realize a small decrease in first year costs of 0.4 percent. After multiple failed attempts to increase immediate costs to plan sponsors by Mr. Lindholm, the Board voted 8-1, with Chairman Tom Flanigan voting no, in favor of Prevatt’s motion.

With the action of the Board, and the near unanimous vote, the debate over amortization periods is over for now. The topic will come up again next year when the board revisits the assumed rate of plan returns, a key component determining the rates the employer and employees in the pension system pay to fund retirement benefits.