The audit report, posted to the California Public Employees’ Retirement System’s website ahead of a Tuesday board meeting, detailed shortcomings in the $490 billion pension fund’s efforts to track retiree deaths and recover overpayments.
About 1,800 CalPERS beneficiaries die each month, according to the pension fund. CalPERS often does not learn about deaths right away.
The division in charge of tracking deaths and recovering overpayments often failed to halt payments quickly after retirees’ deaths or to quickly initiate efforts to get the money back, according to the report from CalPERS’ Office of Audit Services.
As a result, unrecovered overpayments grew by about $5.6 million from July 31, 2019 to July 31, 2020, reaching $41.6 million, according to the audit. The caseload grew by 3,000 deaths in that period, rising from 19,000 to 22,000.
CalPERS paid about $25.8 billion in retirement benefits in the 2019-20 fiscal year. It recovered about $127 million in overpayments in the same fiscal year detailed in the audit report, according to Anthony Suine, CalPERS’ deputy executive officer for customer services and support.
Auditors analyzed 30 sample unrecovered overpayments from Jan. 1, 2018 through July 1, 2020, according to the audit. In those cases, they found the CalPERS’ Disability and Survivor Benefits Division took an average of 47 months to identify deaths.
The delays in the sample cases resulted in $2.34 million in unrecovered overpayments, according to the report.
Auditors classified their findings as being of “immediate concern” with the potential to cause “significant risks if not addressed as soon as possible.”
PENSIONS FOR 2 MILLION CALIFORNIA PUBLIC EMPLOYEES
CalPERS administers retirement benefits for about 2 million current and former public employees in California, who draw average pensions of about $38,000 per year in retirement. About 633,000 of the 2 million are retired.
Keith Riddle, the Disability and Survivor Benefits Division chief, disagreed with the severity of the auditors’ findings in a written response.
Riddle said the auditors’ methodology — including the way they selected the 30 sample cases — overstated the extent of the overpayments.
“The methodology used by (the audit office) targeted a few larger receivables that were a result of deaths not reported to CalPERS nor known to (a contractor) for lengthy periods of time,” Riddle said in the report.
The pension system learns of retiree deaths in one of two ways, according to the audit.
About 77% of the time, retirees’ survivors call CalPERS to report deaths, Riddle said in the letter.
In the other cases, a contractor — the Ohio-based Berwyn Group — informs the pension system of the deaths in weekly reports.
CONFLICT WITH SOCIAL SECURITY ADMINISTRATION
Riddle cited a decade-old issue with the Social Security Administration’s handling of death data as a major contributor to the division’s difficulties.
Since 2011, the federal agency has limited the death data it shares with states, Riddle said, and states have limited death data they share with the federal government.
Those limitations contributed last year to the federal government sending $1.4 billion in stimulus checks to dead people, and have frustrated other federal agencies, Bloomberg reported last month.
CalPERS requested access to the agency’s full death file, but was denied on grounds that the pension system’s benefits are not fully funded by the state, Riddle said in his letter.
The Berwyn Group can access the federal agency’s data, but can’t get complete data from other states from the agency, according to the letter.
CalPERS is applying through another program for full access to the Social Security Administration’s death data, and is looking for another contractor to identify more deaths, Riddle said in the letter.
Sometimes, however, CalPERS received notices of deaths within a few days but didn’t report related overpayments until weeks or months later, auditors found. That happened in three of the 30 sampled cases, according to the audit report.
Auditors also found that the Disability and Survivor Benefits Division sometimes missed opportunities to recover overpayments when sending money to dead retirees’ beneficiaries.
For example, auditors identified a case in which CalPERS had overpaid a dead retiree about $2,100 by July 2020. The system missed an opportunity to recoup that money when it made a lump-sum payment of $205,000 to the retiree’s surviving spouse and son a year earlier, according to the audit.
Riddle said the division would incorporate new procedures so employees miss fewer recovery opportunities.
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