The auditors recommended the city have a majority on the 13-member board, since it says the city pays more than half of the contributions into the system, according to the Fort Worth Star-Telegram. The newspaper sounded an alarm in April about the system’s oversight flaws and lack of safeguards (See Ft. Worth City Council Urges Examination into Pension Fund Flaws ).
The audit attributed some of the system’s problems and deficit to the board, which it said, “heavily favors the beneficiaries of the fund,” according to the news report. Auditors recommended no further benefit enhancements should be enacted by the board until fiscal impacts are determined.
Also, among the 18 concerns brought by the auditors was the way retirement benefits are calculated. The city calculates pensions based on an employee’s highest three years of pay; however, those who projected the fund’s expenses did not plan for excessive overtime amounts, which have added $120 million to the fund’s $411 million shortfall, the Star-Telegram said.
The audit said some employees doubled their salaries through overtime pay in their last years and cited an instance where a police corporal with 25 years of service will be able to collect $4 million in retirement benefits over her lifetime instead of the $1.8 million to which she would have been entitled without overtime included in her salary calculation.
The auditors suggested a cap on the amount of overtime used to calculate retirement benefits, or that the system only use base pay to calculate retirement benefits, the newspaper reported.
Another issue brought by the report was the lack of pension plan policies guiding hedge fund investments. The auditors suggested that plan investments in hedge funds should be cut or reduced because the risk was too great, the fees were too excessive and the returns were too little. According to the auditors the hedge fund generated a 7% return in 2005 and its fees were seven times that of traditional funds.
Also brought to light were fees paid to advisers and consultants, as the auditors noted a fee increase of 69% from 2003 to 2004 and an additional 39% from 2004 to 2005. Auditors said they could not get details about the fees paid to some advisers, money managers and the fund’s consultant and could not get a breakdown of attorneys’ fees, which totaled $800,000 over five years. Auditors also said the pension system did not put some costs in the right accounts.
The audit also criticized the board’s payment of $130,000 to a lobbying firm to prevent legislation that would have required annual outside audits for pension funds of all municipalities. The auditors recommended the city do annual account and actuarial audits until the system becomes at least 90% funded.