San Jose’s pension overpayment fiasco — with mistakes going back some 20 years — is doubly frustrating because there’s nobody around to blame.
Here’s who is not to blame, however: The retirees.
The city council and retirement boards need to keep that in mind when they decide how to handle the overpayments — some in the hundreds of dollars, some in the thousands and a few in the tens of thousands, totaling around $1 million.
Public money paid improperly is supposed to be returned by law, but sometimes a payment demand doesn’t seem quite right. The Pentagon learned this last year when it tried to recover bonuses California National Guard recruiters had used improperly to persuade soldiers to re-enlist during a war. Congress intervened to let the veterans keep the money.
The city case is different — retirees here weren’t given the extra money to go risk their lives — but rules sometimes need a human touch in enforcement.
There are pension problems for two groups of San Jose retirees. For non-public safety workers, 25 were promised or paid more under the retirement plan formula than the IRS allowed. That seems like the fault of the plan, although the retirement board is suing the city to make up the difference. A dozen retirees were overpaid.
The public safety plan’s problem is greater and more complex, affecting 300 of the 2,000 safety retirees. Going back nearly 20 years, some city finance staffers — most or all of them probably long gone — miscalculated pension payments for retirees.
For public safety, take-home pay can include overtime and a whole range of other add-ons, some of which should not be used in pension calculations. The potential problem showed up in a 2009 audit, but it took seven years to sort out, staff says, because all 2,000 retirees’ numbers had to be checked through complex records–many on paper–and because the period coincided with drastic budget cuts in the city, leaving the finance staff stretched paper thin.
Pension payments will be adjusted going forward, but the city and the boards are still pondering how to deal with recovering overpayments to make the pension plans whole.
Some say the retirees should have known their pensions were off. But if the formulas are so complicated that city finance staff couldn’t keep them straight, how could retirees? Probably a few had an inkling they were getting a little extra, but it wasn’t like finding an extra million dollars in your checking account and just going out to buy a yacht.
The boards and the city need to work with retirees individually on reasonable repayment plans. That appears to be happening. There may already be hardship cases, particularly for older retirees, that require creative financing — or even some measure of forgiveness, if that can be done without entitling everyone to a free ride.
In the abstract, every penny should be paid back ASAP. But taxpayers are human. They may understand the value of cutting some slack for folks facing hardship because of mistakes others made long ago.
