For more than 20 years, city of Grand Junction employees have been regularly contributing to a Retiree Health Benefit Plan — money they were led to believe was being held in a third-party trust, money they thought would be plentiful enough for them to pay health expenses after they retire.
But while there is money in the fund, there is no trust, and there never was one, and that has prompted a legal response filed last week demanding answers — and accountability — from city officials.
"The reality is the participants in the plan were told these funds had been placed in a trust. And a trust is the appropriate vehicle. That's where they should have been," said Marc Colin, with Denver law firm Bruno, Colin and Lowe P.C. "As it turns out, they never were."
Colin's clients are members of the Grand Junction Peace Officers Association, which comprises current and former employees of the police department. The Notice of Claim filed Sept. 2 is statutorily required under the Governmental Immunity Act, as a way to preserve possible future claims, and is directed to the people who "might be named as defendants in a future lawsuit," Colin said.
Named in the notice are City Manager Greg Caton, City Attorney John Shaver, city Finance Director Jodi Romero, and former city Human Resources Director Claudia Hazelhurst.
Colin said his clients were told in January that the fund — which is supposed to allow employees who put in 15 years to become vested, and even if they retire at the early age of 50 use the benefits to pay health care costs — was underperforming.
"From that point forward we've been trying to find out the status of the funds — how monies were expended, how monies were received, how they were accounted for — and we have been met with, let's say, less than a complete response," Colin said.
The notice alleges Romero and Hazelhurst at minimum breached a fiduciary duty to properly manage the fund, and a March 1 email from Hazelhurst to a member of the association admitting "there is no trust" prompted the legal filing. The lack of a formal trust also means there is no trust document, which would have determined the parameters for trust management as well as what would happen if the trust isn't viable moving forward.
Worse, perhaps, the notice alleges "various" times since 1998 in which Romero, Hazelhurst, Caton and other city officials have represented to plan participants, the federal government, actuaries on retainer, financial advisers and others that plan funds were being held in a third-party trust, sometimes including the chimeric detail that there was a trust board overseeing its performance.
'SEPARATE' ACCOUNTING, AND
QUESTIONS OF COMMINGLING
Between 2003 and 2009, the city's Comprehensive Annual Financial Report listed the benefit plan as being held in a "Private Purpose Trust Fund" — something the city now admits was confusing at best, incorrect at worst.
Romero — who became finance director in 2007 — said that after 2009 the benefit funds were "better reported and managed within the (city's) self-insurance fund" and at times were part of the city's general fund.
There are two major issues with that, Colin posits.
Statutorily, municipal self-insurance funds "shall be kept separate and apart from all other funds," he writes in the notice.
Further, even if the city held the monies within the general fund with separate accounting, it would be "grossly inappropriate to commingle funds with the general fund," Colin said.
His notice says keeping the money in the general fund resulted in "gross underperformance of fund investments" and "has exacerbated losses associated with mismanagement of (the plan)." He also alleges "substantial monies … disappeared" via the multiple general fund transactions, something Romero "absolutely" denies.
"I will tell you that those funds have been used for nothing else besides paying the plan's portion of the premium for the folks that were retirees on the plan," Romero said.
"We have what's called an org set … (that) always accounted for the inflow and the outflow of those funds that were restricted and only used for the retiree health benefit," she said, adding that detailed transaction histories exist to back up the claim.
"If there is a separate account in the general fund, that is inconsistent with the information that we've received from them," Colin said.
"Our understanding is that the funds were simply commingled with the general fund, and that they may have tried to keep some sort of separate accounting," he said. "I've never seen the documents that verify that there was any sort of separate accounting."
Both Romero and Caton said that they do not consider funds held in a separate account within the general fund as being "commingled."
"We'll ask an accountant. I suspect they may have a different perspective," Colin said in response.
In a response to the notice filed Tuesday, Denver attorney Kirsten Stewart, of Sherman and Howard, addressed the separate accounting strategy.
"Contrary to your allegations in the Notice, the (health plan) funds have been and are being accounted for separately, even though the results of the program have been financially reported differently depending upon the requirements of the applicable Government Accounting Standards Board statement at the time of the report," her response reads.
The notice lays out with great specificity the many times that financial submissions and city staff directly referred to the health benefit fund as being held in a trust — which is usually and generally defined as a legal arrangement in which funds or assets are held by a third party.
It starts with the city's annual financial reports between 2003 and 2009, which clearly stated the benefit monies were held in "Private Purpose Trust Funds."
"It was financially reported as a fiduciary fund, in the financial reports, because it was held in trust for a certain purpose," Romero offered. But when pressed on her use of the term "in trust" she said she doesn't mean an actual trust.
"As we've said and indicated to anyone that has asked, there never has been a formal trust formed," she said.
She said part of the city's expected response to the recent Notice of Claim will be to look at accounting standards at the time of those annual reports, and why the city classified the benefit fund the way they did will be part of that response.
The annual reports, though, are just one place that Colin alleges city staff misrepresented that a trust fund existed.
■ An Actuarial Report completed in June 2016 allegedly indicated that "a qualified trust has been created and funded for the purpose of funding retiree subsidies."
■ A 2010 application for federal funding — submitted by Romero — to bolster the fund indicated it "will continue to maintain a separate auditable account, as has been the case for the entire 12 years since the program was started in 1998."
■ In 2016, Colin alleges that Romero reported to City Council in a budget memorandum that there "is" a trust with a "separate" trust board. That "false representation," as Colin calls it, was disseminated to all city employees through a "City Lights" newsletter, the notice alleges.
■ A Request for Proposal in 2017 directed to financial advisory firms for help in managing what had been determined as problems with the plan indicates that "the Trust is managed by the Board who will have fiduciary duty over the Plan," and, "the Board is comprised (sic) of seven members…"
■ Finally, a City Manager's Budget Update for 2017 delivered by Caton — he arrived as city manager in 2016 — repeatedly represented that the Retiree Health Fund "is a standalone trust," according to the notice. The city's Final Recommended Budget for 2017 includes a footnote that specifies: "(A parks improvement fund) and Fund 706 Employee Retiree Health Benefits Fund are both trust funds which have separate boards with fiduciary responsibility."
Despite the alleged paper trail, Caton said last week, "It was never articulated to our employees that it was in a trust."
While Romero did offer a response as to the accounting strategies employed by the city over the years, she declined for now to address any of the instances where it's alleged she misrepresented that the benefit monies were indeed held in a separate trust, as laid out in the notice.
"There will be several of us working together … on responding to those points," Romero said. "The preference is to wait until we compile the response, as a team."
The notice response filed Tuesday, though, does not address any of the alleged instances in which the city may have misrepresented that a trust exists.
"I'm extremely troubled by the behavior of these folks, and hopefully we'll get some answers here soon," Colin said.
He said he thinks much will be learned when a pending actuarial report currently being conducted by the city comes out.
Caton also said "a fourth party" is currently reviewing the work done by "a third party" hired by the city to help with changes to the plan that "would put it on a financially solvent path." That report is six to eight weeks out, Caton said.
How the city responds to the recent notice will dictate what happens next with the peace officers association.
"If (the city) made sure that the fund was solvent, both now and in the future, then that would go a long way to satisfying my clients' concerns," Colin said.