Audit results could cost city $420,000 a year

Report states 92 Martinez employees must begin paying into Social Security

By DONNA BETH WEILENMAN
Martinez Tribune

MARTINEZ, Calif. – California Public Employees Retirement System (CalPERS) officials have said an audit shows 92 Martinez employees must begin paying into Social Security.

However, city officials are contemplating an appeal of that decision, Assistant City Manager Alan Shear said.

The change, once instituted, could mean employees put 6.2 percent of their wages into Social Security, with the city matching that amount. Annual cost to the city could be $419,000 to $420,000, Shear said.

“That’s an expenditure not in the budget,” he said. The money would come from the city’s General Fund, made up of ongoing revenues.

The city was told in a Sept. 4 CalPERS letter that employees that were part of a joint facilities agency (JFA) formed by Martinez and Pleasant Hill, should have instead been considered city employees.

Martinez has more than 250 full and part time employees, according to Betty Yee, state controller.
But the decision doesn’t include any member of Martinez Police Department, Shear said. Outside the police department, the impact is city-wide, including department heads, he said, “basically all employees except police officers.”

Shear and other officials knew for some time CalPERS had questions about the JFA. As early as Dec. 17, 2012, CalPERS chief of the Office of Audit Services, Margaret Junker, sent a review of the two cities’ agency.

That review said non-reportable compensation had been reported, special compensation wasn’t included in a written labor agreement and had been reported incorrectly, and eligible part time employees had not been enrolled into membership.

But that document, limited in scope, didn’t weigh in on whether the employees worked for the JFA or Martinez.

However, Junker promised the Office of Audit Services (OAS) would continue to examine the agency, which had contracted with CalPERS beginning Feb. 1, 1983, to provide retirement benefits for the local employees.

The OAS sent an early draft of its report to the JFA.

In his July 22, 2014, response to the JFA, Michael D. Youril of the Fresno legal firm Liebert, Cassidy, Whitmore, wrote Junker that the JFA has been cooperating with CalPERS and supplied all the non-privileged information in its control. Only information protected by attorney-client privilege had been withheld, he wrote.

Despite extensive efforts to determine if any exist, Youril wrote that no additional documents could be found by Pleasant Hill staff.

He argued that the JFA “undoubtedly meets the definition of a public agency under the Public Employees’ Retirement Law.”

He reminded the OAS that the JFA is separate from Martinez, and that there is precedent for the City Council to serve as the agency’s board of directors.

However, that letter didn’t sway the OAS.

On Feb. 27, 2015, Young Hamilton, acting chief of the Office of Audit Services, sent Shear a final report on the results of the public agency review of the JFA.

In his letter, Hamilton said his office read the city’s objections to portions of an earlier draft of the report, but wrote that the response “did not change our underlying findings.” The final report addressed some of the Martinez objections, and referred the issues to various divisions of CalPERS, he added.

“OAS found that the Agency did not provide certain information requested and necessary to determine the correctness of enrollment in the system, retirement benefits and the date the city of Pleasant Hill withdrew from the Agency,” Hamilton’s report stated.

“OAS also examined the employee/employer relationship of the seven sampled individuals reported to CalPERS by the Agency and found the Agency incorrectly enrolled and reported the seven sampled individuals. The sampled individuals were found to be common law employees of the City of Martinez (City) and not the common law employees of the Agency.”

Shear said the JFA was formed in 1975 primarily for recreation services, such as issuing bond debt to build such structures as community centers and later to provide employees to those places. Later, the agency was expanded in purpose to include information technology.

“Two small cities put together an agreement to form an agency,” he explained.

“It never really acquired assets,” he said, although the agency had a board of directors and representatives from both Pleasant Hill and Martinez.

The OAS report said the arrangement between Pleasant Hill and Martinez changed, and the agency now is governed by the Martinez City Council.

In the report, the OAS said the JFA was unable to provide all the information it needed to determine the correctness of retirement benefits, enrollment processes and changes to its original structure.

The JFA incorrectly enrolled ineligible individuals, the report said, explaining that those employees were listed on the city’s organizational chart, performed services that were part of Martinez’s normal operations and done at city offices during normal business hours with city-supplied equipment.

The positions were included in the city pay schedule and compensation plan, and the city had the right to control how the specified employees performed their work, the report said.

Among the positions OAS contends should be considered as common law Martinez employees instead of the JFA are senior management analyst, assistant city manager, deputy public works director, city engineer, finance manager, public works superintendent and police dispatcher, since it is not a sworn position.

“What CalPERS did,” Shear said, “was determined that employees listed as JFA employees in the PERS system are employees of the city.”

At some point, he said, it’s likely those employees would be moved to the city’s employee retirement plan. Shear said he doesn’t anticipate the decision would be applied retroactively.

On the other hand, the city may decide to appeal the OAS findings, something that will need to be filed in November, although Shear said no decision has yet been announced.

“We’ve discussed it with counsel and the (City) Council,” he said.

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