August 25, 1998



Honorable Frank J. Ochoa, Presiding Judge

Santa Barbara County Superior Court

1100 Anacapa Street

P.O. Box 21107

Santa Barbara, CA. 93121-1107



Board of Supervisors’ Response to Findings and Recommendations in the 1997-98 Grand Jury Interim Report on the County Retirement System



Dear Judge Ochoa:


The following is the Board of Supervisors’ response to the 1997-98 Grand Jury Report entitled on the County Retirement System. The Board appreciates the Grand Jury’s interest in this area.


Finding 1:


The ’37 Act states that when the assets of the retirement system exceed $800 million, the Board of Supervisors may establish a Board of Investments which shall be responsible for all investments of the retirement system. Membership on the investment board shall consist of nine (9) members consisting of the county treasurer; two general employees of the system elected to the Retirement Board; a safety member who is also a member of the Retirement Board, as is the eighth member who shall be a retired member,. The fifth, sixth, seventh and ninth members shall be qualified electors of the county appointed by the Board of

Supervisors, having significant experience in institutional investments. Such persons are apparently not required to be retirement Board members.

Response: The Board agrees with the finding.


Finding 3:


Board of Supervisors has not established a Board of Investments to be responsible for all investments of the retirement system.


Response: The Board agrees with the finding


Finding 4:


The April 8, 1998, edition of the Los Angeles Times reported that a first ever audit by an outside actuarial auditing firm found substantial calculation errors in the Los Angeles County Employees Retirement Association calculations resulting in $1.2 billion in unforeseen liabilities to the retirement fund.


Response: The Board agrees with the finding.


Finding 15:


There are many members of the State Bar residing in Santa Barbara County who are qualified to serve as hearing officers.


Response: Although the Board agrees that there are many members of the State Bar residing in Santa Barbara County who are "qualified" to serve as hearing officers, there are relatively few who have the appropriate training and experience to perform all of the duties of Retirement Board Hearing Officer in a preferred manner.


Finding 19


Santa Barbara County is one of only four counties in the state to which Section 31529.9 applies. Since entering into service agreements with the private law firms, the Board has refused to retain the services of County Counsel for any purposes relevant to disability applications. This leaves the choice of hearing officers and Board retained medical examiners to be exclusively the result of referral and selection by the Retirement Administrator and the Board’s contracted private law firm/counsel.


Response:. The Board disagrees partially with the finding. Although Santa Barbara County is one of four counties to which Government Code Section 31529.9 is applicable (which section provides for the retention of private counsel, staff counsel and county counsel and authorizes compensation for each), there are other code sections which allow all counties participating in CERL to retain private counsel in disability cases even without a conflict of interest by County Counsel. Further, the Retirement Board continues to use County Counsel for various matters without direct compensation.


The Retirement Board retains the authority to select hearing officers and private counsel are not involved in that selection. Retirement System members have three representatives on the Board and through these representatives have input into the selection of legal counsel.


Finding: 20


Board has contracted with private law firms for legal services that are compensated at substantially higher hourly rates, paid by the system, than the rate at which the Board would incur fees by contracting with County Counsel.


Response: The Board agrees that the Retirement Board has, in various but not all instances, contracted with private law firms for services that are compensated at higher rates than would be charged by County Counsel.


Finding 22


Legal services that are within the scope of duties, and in the past have been performed for the Board by County Counsel, have in all matters pertaining to disability applications been contracted instead to the private law firms.


Response: The Board agrees with the finding, with the exception of a few old cases pending in the Court of Appeal.


Finding 24:


The Board’s utilization of private law firms with a continuing personal financial interest in advocating decisions that favor the Board’s rejection of the member’s disability application can be perceived as a basis of bias in favor of the Board. This creates adverse pressure to the detriment of the applicant.


Response: The Board disagrees with the finding. Although it is difficult to disagree that a "perception" of bias could exist and that this "perception" could create adverse pressure on an applicant, the Board disagrees that utilization of private law firms by the Retirement Board in itself constitutes bias.


Finding 31:


The Board may appoint one of its members or any member of the State Bar to act as a hearing officer.


Response: The Board agrees with the finding


Recommendation 1: .


A Board of Investments should be established to oversee invested funds.

[Finding 1, 2 and 3]


Response: The recommendation will not be implemented at this time. A Board of Investments is not considered necessary given the current size of retirement fund assets and its existing strong financial health and oversight by the Retirement Board. However, through its member participant on the Retirement Board, the Board of Supervisors will monitor the situation and, as future retirement fund assets increase, may consider establishing a Board of Investments.


Recommendation 2.

Periodic in-depth actuarial audits of the retirement fund should be performed by an outside auditor.

[Findings 4 and 5]


Response: The Recommendation has been implemented. Actuarial audits of the Retirement Fund are conducted whenever there is a major change in actuarial assumptions; whenever there is a change in actuary consultants; and, at least once every ten years. The Board of Supervisors, by copy of this response, requests that the Auditor Controller advise the Board as to whether additional periodic actuarial audits of the Retirement Fund would be appropriate.


Recommendation 3 :


Disability retirement applicant’s attorney fees should be paid by the retirement

system when a decision is made in the applicant's favor.

[Findings 6, 7, 8 and 9]


Response: The recommendation will not be implemented. The Board of Retirement functions as an impartial fiduciary not a court of law in disability retirement matters; thus, there are no real "winners" or "losers" in those matters and neither side is authorized by statute to receive attorney fees.





Recommendation 4 :


Use of mutually approved medical examiners and referees should be required during the hearing phase of the application process.


[Findings 10, 11, 12, 13, 14, 15, 16, 17, 18, and 19]


Response: Implementation of the recommendation is not within the authority of the Board of Supervisors. The system for appointment of medical examiners and referees is matter internal to the Retirement Board.


The litigation regarding whether due process requires neutral mutually approved medical examiners and referees is still pending.


Recommendation 5 :


Board should hire private law firms only when County Counsel has a "conflict of interest."


[Findings 20, 21, 22, 23 and 24]


Response: Implementation of the recommendation is not within the authority of the Board of Supervisors; the issue is a matter for consideration by the Board of Retirement.


Recommendation 7 :


A pamphlet outlining the Retirement System and application procedures should be published and provided to employees regarding regular and disability retirement.


[Findings 27, 28, 29 and 30]


Response: The recommendation will be implemented within the next six months; the Treasurer-Tax Collector will revise all of the basic retirement information brochures to include the recommended information (as per Treasurer-Tax Collector’s response to the recommendation).


The Board of Supervisors thanks the Grand Jury for its work in this area.







Gail Marshall, Chair

Board of Supervisors




cc: Tim Putz, 1997-98 Grand Jury Foreman

Gary Monson, 1998-99 Grand Jury Foreman

Gary Feramisco, Treasurer-Tax Collector

Robert W. Geis, Auditor-Controller

Shane Stark, County Counsel