As Orange County supervisors move to establish a new system for them to pay into their pensions, Supervisor Todd Spitzer is questioning legal advice that he said gives a green light to supervisors to claim tax deductions on their pension contributions.
The new arrangement, quietly approved last week on a unanimous vote, sets up voluntary “charitable contributions” from supervisors’ paychecks to the county to compensate for their employee share of pensions.
Spitzer said he is concerned about legal advice indicating that supervisors intend to claim the contributions as tax deductions.
“I’m not sure the IRS is going to be comfortable with this,” said Spitzer. “You’re basically reimbursing something that benefits yourself, and then you’re going to write it off.”
“On its face it doesn’t seem logical or right. It doesn’t seem lawful,” Spitzer said. He has sought an IRS opinion on the issue, he said.
Board Chairman Shawn Nelson, meanwhile, disagreed with Spitzer’s analysis, noting that the direct pension plan payments would still come from the county.
“Anyone’s allowed to make a contribution, and it’s not your pension contribution. It’s an amount equal to [it],” Nelson said. "There’s a fictional tie-in to your pension," he added. "You’re not actually deducting your pension contribution.”
County Counsel Nick Chrisos didn’t return a message seeking comment, and the rest of the Board of Supervisors couldn’t be reached late Tuesday afternoon.
Much of Spitzer’s concern rests with an outside legal opinion from Orrick, Herrington and Sutcliffe, which he said was the only legal advice on the topic provided by the county counsel.
According to Spitzer, that May 7 opinion is only four paragraphs long and states that the pension contribution should be tax deductible.
Beyond appearing questionable on its face, Spitzer said, the opinion lacks any supporting evidence, such as citing regulations, tax codes or case law.
“Really?” asked Spitzer. “I’m going to take IRS and potential prosecutorial exposure advice from a four-paragraph memo with no legal research, no citations, no call to IRS?”
“It’s just crazy to me,” he said.
Nelson, meanwhile, considered the supervisors’ charitable donation and the county’s pension contribution on their behalf to be completely separate.
“The supervisors aren’t donating their pension contribution to the pension plan,” said Nelson. “All the supervisors are doing is making a charitable contribution.”
Last week’s move was the latest in a series of efforts to reform supervisors’ pensions, which have attracted strong criticism from labor leaders.
While supervisors have pushed employees to contribute their full share and some employee groups have agreed, the supervisors haven’t done so themselves.
Past reform efforts have been largely spearheaded by Nelson, who has pushed to eliminate the supervisors’ pensions and replace them with either a 401(k) plan or Social Security.
But those efforts failed from a lack of support by his colleagues, leading Nelson to lobby for a requirement that new supervisors accept the lowest available pension plan, 1.62 percent at 65.
That change was approved by voters last June, with Spitzer coming in under the new plan when he was sworn in this January.
“I think we’ve made a lot of progress” on supervisors’ pensions, said Nelson, describing the 1.62 percent at 65 requirement as an “enormous” improvement.
“There is no system in trouble that pays benefits at the age of 65,” other than Social Security, he added.
Supervisor John Moorlach accepts the most generous pension among his colleagues: 2.7 percent at 55. He said he pays for the bump in benefits through a “reverse pickup” of around $14,000 per year.
Spitzer and Supervisor Janet Nguyen receive 1.62 percent at 65, while Nelson and Vice Chairwoman Pat Bates aren’t part of the county’s pension system.
Meanwhile, Spitzer said he also endorses having supervisors pay their full share but is left concerned about the approach.
“We should be doing what we’re asking of our employees. But we have to make sure it’s lawful,” said Spitzer.