Auditors: Milwaukee County pension payment system riddled with errors

An ongoing independent audit of Milwaukee County's long-troubled and complex pension system uncovered errors in past calculations of monthly benefit payments everywhere it looked so far, county officials said Wednesday.

Auditors from Baker Tilly checked several groups of benefit payments amounting to just 7% of retirees — 584 out of 8,200 receiving monthly checks — and found mistakes in most of those pension calculations, as well as missing documents, according to preliminary reports provided to the county Pension Board on Wednesday.

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While corrections of the majority of individual accounts highlighted in the audit's findings will be less than $2 a month, the auditors found up to $400,000 in total overpayments to several others receiving disability benefits.

Auditors confirmed a separate $132,000 overpayment to a surviving family member of a deceased retiree that had been reported earlier by the Retirement Plan Services office.

Apart from reviewing 534 individuals in previously identified problem areas, auditors also checked a small random sample of 50 retirees. They found that 54% of those benefit calculations were "likely incorrect." Overpayments to those individuals amounted to $2,800.

In a statement released Wednesday, the Pension Board said it will review the report and work with retirement services employees to correct the mistakes and determine why the errors were made.

The Pension Board said it is committed to working with the administration and the County Board to decide which overpayments should be pursued for collection. 

Milwaukee County Executive Chris Abele requested the audit and called for comprehensive reform of the pension system following disclosure of a 2014 report to the IRS of hundreds of pension errors that will cost the county nearly $2.2 million to correct. The report was not made public until it was released to the Milwaukee Journal Sentinel in response to a records request.

In March, the Pension Board agreed to pay up to $645,000 for the audit. 

Costs of correcting mistakes in the 2014 report are in addition to the $14 million the county had to pay in 2016 to make up for pension underpayments to nearly 1,300 county retirees that started as far back as 15 years ago.

On Wednesday, Retirement Plan Services Interim Director Amy Pechacek said the office will correct errors found in the audit and notify individuals over the next several months if there are changes to monthly pension payments.

"While there were a significant amount of issues uncovered, the good news is that for the majority of the errors found, the confirmed variances are small, spanning just a few dollars per month," Pechacek says in a letter mailed this week to 8,200 retirees.

"The Milwaukee County pension is one of the most complex in the nation, and the amount of separate versions and iterations of benefits and enhancements has contributed to the difficulty in consistent, transparent, and proper benefit calculations for decades," she writes in the letter.

Due to the ongoing audit, Pechacek informed retirees that the office is not taking requests from individuals for recalculations of their benefits at this time.

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County Administrative Services Director Teig Whaley-Smith said the county's overly complicated pension system — with more than 180 paths to benefit eligibility and a few thousand variations of retiree groups within those paths — will continue to cause errors.

He is a member of a work group studying both the feasibility of switching county employees to the state pension system and successful reforms elsewhere.

The Wisconsin Retirement System could take on the county's new employees as well as future years of service for current county employees, Whaley-Smith told the Pension Board on Wednesday.

The county could not move to the state retiree pension benefits or pension benefits of current employees for previous years of service, he said. For that reason, the county would keep a pension system in place to pay those past obligations.

If the administration and County Board agree to switch to the state pension system going forward, the state would send an invoice to the county each year for the cost of funding those pension benefits.

The county's annual contribution for its existing pension liabilities will increase from nearly $65.8 million this year to $72.2 million in 2018, according to the report of county actuaries at Wednesday's Pension Board meeting.

Abele said Wednesday the preliminary audit report confirms that piecemeal reform attempts of the past have not worked and more far-reaching changes are needed. He supports the study of switching employees to the state pension system.

"The larger picture is that the county's historical approach to reform through partial fixes is an abject failure," Abele said in a statement. "Nothing short of a complete overhaul will fix these problems for good."