$200-Million Pension Surplus Fuels Dispute : Finances: County officials, facing a huge budget deficit, want to tighten reins on a retirement board that values its autonomy.

SANTA ANA —  For the fourth time in almost a decade, Sheriff’s Department Lt. Patrick Brunner was running for a seat on the county employees’ retirement board.

In between his duties at the Theo Lacy Branch Jail, Brunner last month hustled for votes from his fellow deputies.

Some of his supporters must have wondered why he would want the aggravation of serving on a board that finds itself in the midst of its biggest controversy since the Orange County Employees Retirement System was created by a ballot initiative in 1944.

Criticism over a 26-day trip to Europe in April exposed the extensive--some critics say extravagant--travel of the retirement board and its staff and has prompted calls for reform.

Still, Brunner, who ran against two other candidates, easily won reelection last week to a fourth term.

“I almost wish I didn’t get reelected because of all these hassles,” said Brunner, who is chairman of the retirement board. “But I will see it through. I don’t intend for all our good work to go up in smoke.”

By all accounts, the retirement board has done well in handling the $1.5-billion retirement fund, amassing a huge, $200-million surplus and getting a high rate of return on its investments. Retirement board members say that travel around the country and abroad is necessary to keep tabs on those investments and keep abreast of the market.

But the criticism over these trips, retirement board members assert, is merely a manifestation of a tug of war that has been going on for years: Who gets to control the retirement fund? And they fear that this time, the power struggle may lead to a tightening of the reins on a board that throughout its lifetime has fought for more autonomy.

“Independence, independence, independence. That was always their watchword,” said Robert L. Citron, who as county treasurer-tax collector has automatically served as a member of the retirement board since 1973. “The retirement system has always been a conflict between management and employee.”

That relationship is being tested now as negotiations are conducted between the county and the retirement board over what to do with the retirement fund’s $200-million surplus. In a strongly written memo issued in April, the county’s auditor-controller called it “embarrassingly large” and said it far exceeds the legal requirements for contingency reserves.

The county, which is facing a $65.3-million budget shortfall in the next fiscal year, wants the retirement board to use some of the surplus to reduce the retirement system’s unfunded liability--much like asking a homeowner to dip into his savings to pay off some of his mortgage.

Reducing the retirement system’s $500 million in unfunded liability would allow the county to trim the amount it contributes to the pension system by about $15 million annually, county officials estimate.

Sources familiar with the negotiations say that the retirement board will probably try to hold out for an agreement from the county to resume paying medical insurance for retirees, a practice that was stopped in the 1970s.

That issue is such a hotly contested one that the Orange County Employees Assn. has filed a lawsuit against the county to resume the benefit payments. The suit will be heard Thursday by the state Court of Appeal.

“They’re both looking at each other carefully,” employees’ union attorney Richard Rockwell said of the county and retirement board. “So I’m not surprised this (controversy) is happening. It is an adversarial relationship because they have different fish to fry.”

The current talks over the retirement fund’s surplus are a replay of similar negotiations during the county’s 1988-89 budget crunch. The retirement board agreed to a bailout plan that relieved the county of its obligation to pay $15 million into the retirement fund in the remaining months of that fiscal year.

But the current flap over the retirement board’s travels has left it vulnerable to charges of using bad judgment and could tip the scale in favor of a proposal to create a new board of investment to oversee the retirement fund.

“I didn’t make that trip” to Europe, said retirement board member Robert Thomas. “It was an error. . . . It was extremely embarrassing. But I just find it tough to believe that somebody is not trying to discredit the board and me, and establish a public awareness that perhaps somebody else can do a better job.”

Four of the nine board members are appointed by the Board of Supervisors. Four are elected by the employees, with one elected by public safety officers, two by general employees and one by retired employees. Citron, the county treasurer-tax collector, serves as the ninth member.

When Citron first inherited the duties of overseeing the pension fund in 1973, it was a much smaller operation, with only two full-time employees who sat just a few feet away from him in the same office complex at Santa Ana’s Civic Center Plaza.

But in 1984, Citron said, the employee representatives on the retirement board began asking for more autonomy.

“They said, ‘We have this big fiduciary responsibility and we have to be independent,’ ” he said. “ ‘You can’t be telling us what to do.’

The four employee representatives, with the support of one of the appointed members, voted to hire a consultant to study their operation. One of the consultant’s recommendations was to hire an administrator to oversee the retirement fund.

As a result of that recommendation, the retirement board in 1987 hired Mary-Jean Hackwood as retirement fund administrator.

Brunner and another board member had met Hackwood at a conference they were attending and were impressed with her, Citron said. At the time, she had just left a job as executive director of the Missouri State Employee Retirement Fund.

Citron and other board members say that they did not know the extent of Hackwood’s problems at her previous job, where she had been accused of withholding important financial information about the pension fund’s real estate holdings. The auditor’s office there also issued reports that criticized her personal spending during out-of-town trips and for unnecessarily purchasing a $25,000 conference table for her office.

Hackwood, who resigned from the Missouri job, was described by her former bosses in recent interviews as “abrasive” but a good fund administrator.

In 1988, when the county announced it was facing a critical budget shortfall, the pension board offered to help and later negotiated the $15-million bailout plan. And what they got in return was an arrangement whereby Hackwood was no longer answerable to Citron.

“I felt that whatever controls we had, they were certainly watered down when they moved down there (to Daimler Street), and they were almost totally gone after the budget incident,” Citron said. “I didn’t agree with it, but I lost. The county lost some controls which they had.”

Now, three years later, retirement board members find it ironic that the county is talking about regaining more control over the retirement system.

“There’s a natural yin and yang with regard to the employee members of the board and the county,” Brunner said. “Now that the county government finds itself in financial trouble, as many other county governments have found themselves recently, they see this very attractive pool of money here and they want it.”