Put yourself in Robert Angeles’s shoes.
Back in 2005, the longtime Milwaukee County employee paid the county $30,513 of his own money to buy six additional years of service, which would make him qualified to retire in April 2014. This was the standard and usual practice.
In 2011, the county recognized his 25 years of employment with a special breakfast, an engraved watch, an executive proclamation from Milwaukee County Executive Chris Abele and a certificate of recognition from the Milwaukee County Board of Supervisors.
In 2013 up through March 2014, the county’s Employee Retirement System (ERS) sent him a flurry of letters informing him of his retirement date—April 17, 2014—and his pension options. He was due to sign his retirement documents on April 14, then work until the end of April 17.
And then he would be on his way.
Angeles and his wife, Pamela, sold their home and had bought a condo in Austin, Texas, where Pamela had obtained a job transfer. They were so close to moving that they had shipped their furniture and were just waiting for April 17, when Robert would finish his job, begin accruing his pension, and they’d start their new lives.
But all of that came to a crashing halt with a phone call on April 9 from Marian Ninneman, the county’s ERS manager. She told Angeles he couldn’t retire, but didn’t tell him why. On April 11, ERS sent Angeles a letter informing him that he couldn’t retire with his pension because “your purchase of service credit”—the one the county advised him to make—“is not allowed under the ordinances.”
“He really got screwed,” Angeles’s attorney, Robert Elliott, told the Shepherd.
Pension Board Knew About Problems But Didn’t Act
Robert Angeles is one of 208 current and former Milwaukee County employees who have been informed by Milwaukee County Executive Chris Abele that they would be penalized for the mistakes made by the county’s retirement system administrators.
These employees were merely acting on information given to them by county administrators about how to participate in its pension system, and then made retirement and investment decisions based on that information.
But unknown to them, the county was operating a pension system riddled with errors and giving faulty advice to its employees.
Some of the administration employees of Scott Walker and Chris Abele, according to testimony given in committee hearings, were well aware that the county’s pension system wasn’t in compliance with Internal Revenue Service (IRS) rules.
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The errors were known by pension board members in 2007 and were made public in a Journal Sentinel article that won a Pulitzer Prize.
The county had admitted its errors to the IRS before that article was published and presented an action plan to the agency.
The county board also unanimously approved—and Walker signed—a resolution to force the pension board to fix the problem, and to try to recoup any overpayments made to retirees. Letters were sent to the 200 or so employees whose pension payments were in dispute.
The county also signed off on an investigation by Chicago law firm Perkins Coie into whether any crimes had been committed by county staffers or the pension board.
The pension board and the Employee Retirement System—housed in the Department of Administrative Services—stopped allowing employees to create plans with the errors, but it didn’t do anything about the employees with disputed plans. It decided to wait for a response from the IRS instead.
Deputy Corporation Counsel Mark Grady told a May 15 Finance, Personnel and Audit Committee hearing that he and the county’s outside counsel, Steven Huff of Reinhart Boerner Van Deuren, had discussed the IRS’s non-response but did nothing about it. They haven’t heard from the IRS since 2009.
“Mr. Huff and I periodically over the past several years have talked about what can we do to push the IRS?,” Grady told the committee. “What can we do to get a response from the IRS? And we’ve talked about, is there any benefit to calling them? Is there any benefit to doing anything more than what we’ve done? We’ve given them everything they’ve asked for. What more can we do? We didn’t really see an avenue.”
Nothing came from Perkins Coie’s investigation into potential criminal activity, either, which was quickly halted. County officials feared that it would turn up information that could be used against the county in its lawsuit against its former actuary, Mercer Inc., which had advised them on the pension changes that turned into the scandal that Walker rode into office in 2002.
“The investigation that was started in the fall of 2007 was halted shortly thereafter because of concerns that it would have a negative impact on the Mercer litigation,” Grady told the committee. “It would cast us, the county and the pension system, in an inappropriate light.”
Can Abele Get the Money from Retirees?
Fast-forward to spring 2014, when ERS’s Ninneman found that the 2007 problem had never been fixed. Neither she nor her boss, Human Resources Director Kerry Mitchell, an Abele appointee, had been aware that the county hadn’t changed the ordinances or dealt with the employees with faulty plans.
The county has a few options. It could change the ordinances to bring the plans into compliance, then get approval from the IRS. Or it could argue that the plans violated IRS rules and county ordinances and try to recoup the money from the retirees.
Abele wants the retirees to pay back the disputed $11 million.
“He agrees with the unanimous action the county board took in 2007 that the money should be recouped,” emailed Abele’s spokesman, Brendan Conway.
On April 22, Ninneman sent a letter to 208 employees and retirees whose “purchase of credit is not allowed under the current County Ordinances.”
Attorney Elliott charged that Abele’s attempt to claw back the money isn’t necessary, even if it is politically expedient.
“Abele has got it in his head that it’ll be political gain for him if it looks like he is trying to get revenue back for the county from these evil county employees who have been getting their retirement benefits,” Elliott said. “It was not an illegal program. If the program was in violation of the IRS regulations, all that means is that it disqualifies the county’s retirement plan under the IRS. It’s a tax consequence to the employees if the plan is not a qualified plan and it’s a tax consequence to Milwaukee County if it’s not a qualified plan. But it has nothing to do with the county’s obligation to the employee.”
Supervisors questioned whether Abele’s attempt to recover the money was possible or wise. After all, the county would have to reimburse the retirees for the investments they made long ago, with interest. The county hasn’t even done the calculations on how much money is at stake, and whether it can be recovered from people who had been advised by the county to invest in the plan.
And Elliott has already filed a notice of claim with the county on behalf of Robert and Pamela Angeles and anyone else in a similar situation, potentially triggering a class-action lawsuit against the county.
In committee, Grady acknowledged that some of the overpayments would never be able to be recovered. The county would then be on the hook for that amount.
“Under IRS rules, to the extent that the pension system makes a mistake in payments that it can’t collect back from the individual who received it, an overpayment, the plan sponsor is responsible to make the plan whole,” Grady said.
Later that day, the committee changed some of the ordinances to bring some of the faulty plans into compliance. That would fix the problem for a few employees, but not most of them. The full board approved the changes on May 22.
Supervisor David Cullen, chair of the finance committee, told the Shepherd the board was waiting for more information from the administration.
“If there is a so-called fix, we need to know what the cost will be,” he said.
Supervisor John Weishan told the Shepherd that he doubted the county would be able to recover the money from the pensioners. He said it was inappropriate for Abele to blame the retirees and dishonest for Walker to campaign as a clean-government reformer when he didn’t fix a pension problem the surfaced on his watch. He said it wasn’t fair for Abele to use the 2007 resolution—which passed in the context of pension “hysteria”—as a way to penalize the retirees.
“I would think that there is not an honest court in America that thinks that you’re going to be able to go back and take away what these retirees were promised when it was Milwaukee County that was doing the calculation,” Weishan said. “It was on Milwaukee County to calculate the right number. And if the county failed at that, we’re just going to have to deal with that.”
