Milwaukee County pension officials report 1,700 errors to IRS.

Majority due to program not calculating interest

Milwaukee County pension officials reported an additional 1,700 errors to the Internal Revenue Service in a yearend summary of proposed corrections as the county continues to dig through its problem-plagued system.

Fully 1,000 of the mistakes stem from miscalculating interest owed as part of so-called pension backdrop payments to retirees, retirement plan services interim director Amy Pechacek said in an email to county board supervisors.

The office computer system used to determine backdrop payments failed to calculate interest due to each worker for their final month of employment, according to the county’s report to the IRS. These mistakes occurred from 2001 to 2012.

All of those errors resulted in small underpayments to retirees but the correction plan report to the IRS does not estimate the dollar amount owed to them.

The cost of making good on the underpayments will depend on the interest rate penalty the IRS requires the county to pay, officials said.

Backdrops are lump-sum payments made to county employees who agree to work past their earliest retirement date. Those employees, in exchange for the upfront payment, accept a small reduction in their monthly retirement checks.

This pension perk has been paid out to more than 2,200 former county workers since 2001. The total tally exceeds $294 million.

Several employees have received backdrop payments of more than $1 million in addition to regular retirement payments.

Along with the backdrop interest errors, the latest report to the IRS identifies 11 other categories of errors affecting 600 or so retirees.

Those mistakes were uncovered after independent auditors this year completed their review of pension records and recommended further investigation of the categories, Pechacek said.

Batches of errors subsequently were found in several categories. Among them: final employment dates used to set backdrop amounts; final average salary calculations needed to determine pension payments; cost of living adjust-

ments; and pension benefit qualifications and start dates.

“With 2,184 pension plan variations, the pension system as designed by policy-makers is simply impossible to administer error-free,” said Melissa Baldauff, a spokeswoman for County Executive Chris Abele.

“That is why the county executive convened a task force to study comprehensive reforms and called for an audit of the system,” Baldauff said.

“In the meantime, pension staff will work to implement policies and procedures that will prevent as many errors as possible.”

Independent auditors in October disclosed miscalculations in 376 monthly benefit payments resulting from pension office staff using the wrong mortality tables for life expectancy of beneficiaries.

The cost of correcting the resulting underpayments plus interest penalties is estimated between $2.7 million and $3.3 million.

Those costs come on top of $14 million the county paid in 2016 to make up for pension underpayments to nearly 1,300 other retirees.

Those errors were included in a 2007 report to the IRS.

In a separate 2014 report to the IRS, the county estimated hundreds of others pension errors could cost the county nearly $2.2 million to correct.

Pechacek was named interim retirement plan services director following the resignation of former director Marian Ninneman in February.

In March, the board of the county Employee’s Retirement System, known as the pension board, agreed to pay Baker Tilly up to $645,000 for the audit.

In August, Abele named a 20-member task force to review possible reforms.

Switching new county hires, as well as future years of service for current employees, to the state pension system is one of the changes being studied.