It is remarkable how little has been written about Milwaukee County’s suit against Mercer Human Resources Consulting. The stakes for county taxpayers are high. The county has hired actuarial experts who have estimated the total cost of the notorious November 2000 pension plan to be $600 million.
The county has also uncovered considerable documentation suggesting the Mercer did a shoddy job when it came to advising on and estimating the costs of the infamous “backdrop” program, which has allowed county employees to collect lump sum payments as high as $600,000 while also getting a monthly pension payment for life. If Mercer is found at fault, the county could win big. (Two years ago it asked for a settlement of at least $100 million.)
Milwaukee Journal Sentinel stories have barely touched on the details in the court filings. Here are a few:
-Mercer actuary Glenn Soderstrom told county officials the company was projecting a 13.5 percent rate of return on the county’s pension fund over a 20-year period. Mercer, in response, admits the statement, but says it’s taken out of context. A 13.5 percent return on the county’s investments, of course, is an absurd projection. At that rate, all kinds of lucrative benefits would have been affordable.
-During the investigation of Gary Dobbert (the county head of human resources who spearheaded the pension plan), Mercer actuary Dennis Skelly was asked why he didn’t contradict Dobbert when he wrongly told the county Pension Study Commission that the backdrop was fiscally neutral (no cost to taxpayers). Skelly said he “didn’t want to make Dobbert look stupid.”
-Soderstrom told investigators it struck him and Skelly like a “thunderbolt” to learn the backdrop would be included in the plan. But Mercer admits that Soderstrom received an e-mail from Dobbert saying the plan was to include a backdrop.
-Soderstrom told the Pension Study Commission, “I am convinced I will not come to you and tell you, ‘Supervisor please pony up $20 million next year.’ You would have the right to kick me in the rear end on that account because I think we would have warned you about potential and surprises.” Mercer, again, says the statement is out of context.
-Soderstrom also told the commission, “Blame the numbers on me, because that is part of my job to forecast sensitivity numbers.” Again, Mercer says this is out of context.
Back in 2002, when I was reporting regularly on the pension scandal for Milwaukeeworld.com, I interviewed Dennis Skelly. In retrospect, his comments aren’t very reassuring. Skelly told me he had never been an actuary for a backdrop plan. When I began to question him about other backdrop plans in other states which I had researched, Skelly said he was unaware of any literature on this.
Later in its legal filing, Mercer says it learned a backdrop provision was to be included (which contradicts the company’s claim its advisers knew nothing about it), and informed Dobbert the firm should be hired to do a cost analysis because a backdrop “would likely not be cost neutral.” But when I interviewed Skelly 16 months later, he expressed no such conviction. “I needed to do calculations to know it wasn’t fiscally neutral,” he confessed.
Why haven’t the juicy details in the legal filings been reported by the Journal Sentinel? After the paper was scooped on the pension, it tended to go overboard, running hundreds of stories on the scandal and demonizing then-County Executive Tom Ament and Dobbert (who was ultimately convicted of misconduct in office). Ament resigned. Seven county supervisors were recalled from office. County government was disgraced.
The theme of a corrupt government had been thumpingly established, and the paper has always had trouble contradicting a good narrative once it is established. The idea that county officials might have gotten poor advice from a private consultant would simply muck up the story.
But just as Arthur Andersen aided and abetted Enron, it’s entirely possible that Ament and Dobbert could not have gotten their pension deal approved without the help of Mercer. Certainly the legal filings suggest that might be the case. Citizens of Milwaukee County need to know the full story.
Pulitzer Punches
No sooner had I posted last week’s column that a reader challenged me to write about the Journal Sentinel’s Pulitzer. Then came columns by Michael Horne and Jessica McBride defending my honor for having broken the pension scandal story and suggesting JS editors should have referenced its influence on their Pulitzer winner. (Thanks guys, just what I need for my tombstone.)
Both bristled at JS Editor Marty Kaiser’s statement that “No one else is going to do investigations like this except newspaper staffs,” given that the pension scandal was broken by online stories at Milwaukeeworld.com and a longer, follow-up feature in Milwaukee Magazine.This back-patting for newspapers as the only ones who do Pulitzer-level investigative journalism was repeated by the Columbia Journalism Review. The argument is hilarious, because Web and magazine journalists are not eligible to win journalism Pulitzers. By definition, only newspapers can do Pulitzer-winning investigations.
The irony of the JS winning for writing about the county pension system, the story it didn’t cover until it was forced to, is remarkable. Even when it finally wins, there’s a dark cloud shading the silver lining.
But it’s still a Pulitzer, for a paper that’s never had one, and whose predecessor paper, the Milwaukee Journal, had last won in 1977. That’s a long dry spell. The victory validates the strategy of Kaiser to recruit nationally for talent. He did, and brought in enterprise and investigative editor Mark Katches, who had overseen two projects that were Pulitzer finalists at the Orange County Register. Katches seems like the real thing, and the JS appears to be giving him the resources needed to do investigations. I hope there are more Pulitzers to come for the paper.
The winning story involved a county buyback program that allowed employees to buy credit toward their pension for previous years of service, even though they had originally waived payments to the pension during those years (for seasonal jobs in their youth, etc.). Horne and McBride note that I wrote first about the county buyback program in 2002. True, but I did nothing about it. JS reporter David Umhoefer learned about the program and did a strong, in-depth story.
The paper hired two actuaries to crunch the numbers on this program, and they estimated a $50 million impact from several hundred employees who got a buyback. Of course, most of the cost actually came for those employees who were thereby vaulted into the elite group that benefited from the backdrop and the 25 percent bonus passed in November 2000 – the pension sweeteners I wrote about that may cost as much as $600 million and led to the ouster of eight elected county officials.
Still, Umhoefer added another discrete tale to the ongoing story of cronyism and greed that has characterized all aspects of the county pension scandal. More particularly, his piece dramatized the impact a daily paper’s beat reporter can have. Umhoefer took over the courthouse beat in 2002, just after the pension scandal hit, at a high-pressure time, when the county and the paper’s coverage of it were in the spotlight. He waded through all the cross-currents, covered the beat with energy and clarity, and brought that knowledge to bear in the buyback story. His Pulitzer winner, in short, was really the culmination of his work as a beat reporter. And yes, it did remind us of the enduring value of newspapers. Whether in print or online, most journalistic scoops are still being delivered by newspapers, and we all benefit from the work they do.
The Buzz:
For those who missed it: Last week I belatedly posted a letter I received from attorney Susan A. Hansen, the daughter of the late Justice Robert W. Hansen, the last candidate to defeat an incumbent Supreme Court member prior to this race. She decries the way Louis Butler was defeated and the impact of this campaign on future elections
And the Sports Nut predicts the Milwaukee Bucks next coach.
