2018-06-20 / Government & Schools / Front Page

IRS concerns stalled schools SRP approval


More than a year after Chesterfield’s Board of Supervisors made significant structural changes to the county school system’s supplemental retirement program, the School Board finally signed off on the amended document during its June 12 meeting.

The School Board took last week’s action without comment, along with several other items, as part of its consent agenda. Why school officials took so long to approve the new SRP has never been addressed publicly.

According to billing invoices from a Richmond law firm hired by former Superintendent James Lane, attorneys repeatedly raised concerns regarding the tax implications of changes the Board of Supervisors made to the school employees’ benefit plan last April.

Copies of the invoices, which span more than nine months, were obtained by Chesterfield resident Brenda Stewart via the Freedom of Information Act and shared with the Observer.

Following the school system’s admission in October 2016 that the SRP’s unfunded liability had swelled to $99 million, the Board of Supervisors directed County Administrator Joe Casey to analyze the program’s structure and recommend amendments to reduce the liability as quickly as possible.

While the SRP was created to benefit school employees, the Board of Supervisors has ultimate authority under Virginia law to substantially modify or terminate the program.

Lane, however, conducted his own parallel probe.

The school system contracted with a Georgia-based actuary, the Nyhart Co., to perform an “experience study” of the SRP and determine how it came to be less than 20 percent funded. It also hired a law firm, Sands Anderson, to assess the legal and tax ramifications for the school system if significant changes were made to the program’s structure.

Lane signed a client engagement agreement with Sands Anderson on Nov. 14, 2016. Since then, the school system has on multiple occasions denied requests by citizens and the media to view documents the firm produced regarding the SRP, citing attorney-client privilege.

The billing invoices, which contain descriptions of work performed by attorneys Bradford King, Gregory Bergethon, Eric Howlett and David Gundlach, provide insight into the complex issues they investigated as their activity levels ramped up through the first four months of last year.

Sands Anderson billed the school system for $12,522 in January 2017, $31,344 in February and $79,686 for March and April combined.

In multiple invoice entries, its attorneys expressed concern about the possibility of the county’s proposed changes causing the SRP to become disqualified by the Internal Revenue Service – which could have severe consequences for the school system and employees vested in the benefit program.

On April 21, Bergethon spoke to School Board Attorney Wendell Roberts about the School Board’s potential liability for tax penalties and loss of the SRP trust fund’s tax exemption if the program were disqualified. Five days later, the Board of Supervisors approved an amended SRP document that was jointly created by Deputy County Administrator Scott Zaremba, Finance Director Allan Carmody and County Attorney Jeff Mincks.

County leaders said sweeping changes – including the imposition of a $95,000 salary cap, extending the minimum payout period from 5 to 7 years and limiting participation to a maximum of 175 school employees annually – were necessary to preserve the program’s long-term solvency and prevent it from negatively impacting Chesterfield’s pristine bond rating.

“We don’t ever want to be faced with this issue again,” Clover Hill District Supervisor Chris Winslow said at the time . The School Board declined to take action on the county’s amended SRP last April, instead expressing support for proposed program changes developed by Sands Anderson and endorsed by Lane.

“We were asked by members of the Board of Supervisors to fix this program. We’ve done what we’ve been asked to do. We have fixed a 10-year-old problem that we inherited,” said Javaid Siddiqi, who at the time was chairman of the School Board.

Sands Anderson, meanwhile, continued to work on the SRP in the months following the Board of Supervisors’ vote, meeting on multiple occasions with representatives from the county attorney’s office.

An invoice entry for June 3 indicates that Bergethon drafted a proposed restatement of the SRP to address “disqualifying issues” created by the Board of Supervisors’ action. According to Sands Anderson’s August invoice, Gundlach prepared bullet points outlining how “proposed edits” to the SRP documents would correct the program’s tax issues.

Still, neither the school system nor the county government took additional action regarding the program for another seven months.

“The School Board and school division staff reviewed the amended and restated supplemental retirement plan approved by the Board of Supervisors last year. At the conclusion of the review, the school division requested changes to the 2017 plan to address operational and legal concerns,” wrote Tim Bullis, a spokesman for Chesterfield County Public Schools, in an email last week.

The Board of Supervisors approved additional modifications to the SRP as part of its consent agenda in March. The staff report noted “one minor amendment to address a tax code matter” and another related to the program’s trust fund.

The School Board ratified those changes and others intended to “align terminology in the plan with school procedures and practices” during its meeting last week.

It’s still unclear why it took so long, though.

Under Section 2-78 of County Code, the school system is authorized to make changes to the SRP’s governing document required for compliance with tax regulations without seeking approval from the Board of Supervisors.

“We have always maintained the School Board can make changes to address legal issues involving the IRS,” said Susan Pollard, director of the county’s Communications and Media Department. ¦

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