Towns look at next steps after retirement board ‘mismanagement’

Date: 3/3/2021

HAMPDEN COUNTY – The Hampden County Regional Retirement Board (HCRB), a public retirement entity, was recently the focus of an audit by a state governing agency, the Public Employee Retirement Administration Commission (PERAC). In a scathing report, PERAC found several problems with the accounting and business practices of the HCRB, which manages the retirement funds of municipal employees in Brimfield, East Longmeadow, Hampden, Holland, Longmeadow, Ludlow, Palmer, Monson, Wilbraham and Wales east of the Connecticut River, and Agawam, Blandford, Chester, Granville, Montgomery, Russell, Southwick and Tolland west of the river.

The audit alleges five issues – nearly a quarter-million dollars in payments for services not received, $87,229 in irregular bank service charges; violation of M.G.L. c. 32, §20(3)(e), which regulates attorney benefits in regards to public entities; conflicts of interest in violation of M.G.L. c. 268A; and “questionable expenses.”

In response to the allegations, the Hampden County Regional Retirement System Executive Director Julianne Bartley released a statement in which she defended the practices of the board.

“The Hampden County Regional Retirement Board has a fiduciary responsibility to oversee the Hampden County Regional Retirement System, a role that is taken with the utmost seriousness by the board members and staff,” said Bartley. She went on to say that the fund increased its assets by more than 32 percent in the same period that the audit examined, and by 63 percent from 2014 to Dec. 31, 2020.

Audit Findings And Remedies

Bartley said that several steps have already been taken to remedy the audit findings. To address the $235,000 paid between 2013 and 2018 to what PERAC described as “scams,” for services not rendered, Bartley said, a new system was put in place in which the executive director is responsible for contacting legal counsel to “review and dispute invoices that are found to be fraudulent.” It should be noted, the board responded that “the services mentioned in the finding were thought to be in direct correlation and a function of [a third-party] website.”

Bartley said that the board and PERAC will work together to confirm the illegitimate payments that the audit alleges were paid to more than 50 entities and seek legal action to recover those funds.

On the second finding, PERAC found that the bank service charges the board paid were unusual in that they had not been charged during a previous HCRB audit and no other retirement boards were assessed for such fees. Bartley said that the board had switched financial institutions in July of 2019 – before the audit – when they discovered the service fee issue.

The third issue cited is a potential violation of a state law, which states “any such county retirement board may employ an attorney from time to time as required, but such attorney shall not be a member in service of the system or a member of the retirement board.” PERAC said that two attorneys hired by the HCRB had deducted retirement contributions tied to the county retirement fund. In addition, they were allowed to join the health insurance program, with the board paying 90 percent of health premiums.

“It is highly unusual for a board to enter into a contract with an independent contractor which provides for that contractor to receive health insurance as if they were a permanent employee of the board,” PERAC noted in the audit report.

In response, the board contended that the benefits the lawyers received were in keeping with the HCRB’s rules and regulations and that PERAC had signed off on those rules. PERAC asserted that the law supersedes board rules.

Bartley said that contributions from the two lawyers will be refunded and legal counsel will be sought under a contract that complies with state law.

Finding number four involves three conferences attended by three board members, in which the conference, lodging, airport transfers, and recreation and entertainment were paid for by an investment consultant without reimbursement. The exact dollar amount of these trips are in dispute, with PERAC estimating the hotel expense alone was $10,936, while the HCRB said the entire cost that should be reimbursed is $7,983.70.

The final matter is that of board compensation, including a $1,843 raise for Chair Richard Theroux without a board vote approving the increase, social security contributions in contradiction to state law, $1,825 in questionable lodging expenses and overtime costs without sufficient documentation. Bartley said that social security payments ended in October of 2020 and that Theroux has already submitted reimbursement of the questionable lodging charges, though she stated that the board disputes the “characterization” of the expenses. All other compensation issues will be placed on an agenda and voted on by the board, Bartley said.

Towns React

Hampden Select Board Chair Donald Davenport noted that the costs associated with the audit findings are coming to light at the same time that member towns are experiencing “eye-popping increases in retirement assessments. The Hampden County retirement system has one of the highest, if not the highest, unfunded liabilities in the state.”

Hampden Interim Town Administrator Bob Markel explained to Reminder Publishing that the assessments are increasing dramatically because the HCRB is required to be “fully funded” – meaning that it can meet payment obligations for current and future retirees – by 2036. It is currently funded up to 49 percent.

At the Select Board’s Feb. 22 meeting, Davenport said that the HCRB accounts for the largest single increase to the town’s budget, with an increase of 8 or more percent annually. This year alone, the town’s assessment increased $103,000 to $706,000.

Davenport read the audit findings into the record at the meeting and said the audit showed “mismanagement and malfeasance.”

Markel, who had once served on an ethics panel in response to irregularities at the Essex Regional Retirement System, agreed. Of the “wholesale mismanagement” at the HCRB, he said “Those monies are contributed by employees and the towns. It’s our money. It’s the employees’ retirement money.” Markel called the payment of 90 percent of attorney health insurance “scandalous,” and pointed out that municipal employees generally pay 50 percent of their premiums.

The Wilbraham Town Administrator Nick Breault described the audit report as “unflattering and distressing.” Like Davenport, Breault said that the substantial annual increase in the town’s assessment was a significant portion of the town’s budget. Wilbraham’s assessment went up by $70,630 from FY20 to FY21 and increased $212,988 for the recently announced FY22 assessment, which totals $2,451,527.

"It’s a challenging obligation for the town to meet – all towns,” Breault said.

Southwick Town Clerk Michelle Hill said the audit findings were “very alarming.” She said that she and Chief Administrative Officer Karl Stinehart are “doing our due diligence in getting all of the information,” about the facts behind the audit’s findings. The two officials attended the Feb. 24 HCRB meeting and at which some questions were asked of the board, and plan to attend the upcoming meeting as well. About 70 full-time municipal employees in Southwick pay into the fund, Hill said.

“The audit findings raise significant concerns with the internal controls and practices of the Hampden County Regional Retirement System,” said Longmeadow Town Manager Lyn Simmons. “This recently released audit only covers the years of 2014-2017, it will be very important to review the practices that have taken place from 2018 through today to get the full picture. The hard-working members that comprise the [retirement system] entrust the board and the executive director with proper management of their retirement funds. To see what the audit uncovered is concerning, to say the least. It is in the interest of the 280 Town of Longmeadow actively contributing members, the numerous retirees and all other members of this regional system that the Hampden County Regional Retirement System function in an efficient, fiscally responsible and legal manner.”

In response to questions from many of the current contributing members of the fund, as well as retirees, Longmeadow has posted a link to the audit on the town’s website.
Next Steps

PERAC Executive Director John W. Parsons said that he anticipates further audits of the system. “As to the potential for litigation or charges, the PERAC Commission at its February meeting made referrals to enforcement agencies, so any investigation that may come from those referrals is up to the enforcement entity.”

Many of the towns in the systems are coordinating to discuss next steps and actions that may be taken.

“From my perspective,” McNally said, “on behalf of the employees of East Longmeadow – 406 of whom are in the system – I intend to obtain some additional information about current practices and what, if any, remedial action has been taken so far to address the issues identified in the audit. I also want to know which “appropriate” agencies PERAC has made referrals to for further investigation.”

Davenport said, “I believe member towns need to join together to demand answers, reform and if need be, seek the resignation of the director and the board. In my view, we cannot let the mismanagement of our tax dollars and town employees’ retirement contributions continue.” Davenport has requested documentation through the Freedom of Information Act (FOIA) to verify the steps taken by the board so far to remedy the audit findings.

Breault said it was, “premature to discuss what our options might be,” and planned to attend a special meeting of the HCRB on March 3 at 10 a.m. to go over the findings with interested parties.

“As to future consequences, if problems persist, PERAC has significant authority to control the activities of a retirement board, under exceptional circumstances,” Parsons said. “The board has pledged to work with us to address the findings and institute new controls and practices, so we are hopeful that this will lead to a clean bill of health down the line.”

Update: On March 1, attorney Stephen Buoniconti stepped down as legal counsel for the HCRB.