Pension Fund Grab to Balance Budget

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December 6, 2010; Source: Gilroy Dispatch | The two charter schools operated by the Mexican American Community Service Agency in Santa Clara County, Calif., have long been on a downward spiral financially and managerially. One managerial miscue involved a practice that feels abhorrent and abusive to employees but may be pursued more frequently than some might think. MACSA was “skimming retirement money from charter school employee paychecks to pay for operating costs due to financial mismanagement,” according to The Gilroy Dispatch. In 2009, MACSA owed about $1 million to employee 403(b) pension funds and retirement accounts. MACSA’s executive director said that she had no choice; it was either take from the retirement funds to keep the schools running, or fire people and make the schools “dysfunctional.”

This is on top of evidence of misuse of restricted funds, such as a $250,000 program grant for general operating costs, and more evidence of commingling and diversion of resources. Having balanced the budget on the backs of employees, the MACSA leadership at the time—CEO Olivia Soza-Mendiola, COO (and San Jose City Council candidate) Xavier Campos, and CFO Ben Tan—have all left MACSA’s employ, but they were the people in charge when retirement funds went to the nonprofit’s general operations.

Retirement funds are for the future for most people (except those on the brink of retiring), so we expect that financially constrained nonprofits tap pensions and retirement accounts because there is no immediate pain felt by employees. Their ability to pay the rent or mortgage, put food on the table, and clothe the kids isn’t materially altered by their employer’s skimming from the retirement accounts.

In MACSA’s case, it seems like the organization simply went into the 403(b)s and diverted money to operations. In others, we would guess that the employer’s contribution or match suddenly gets reduced or doesn’t get deposited at all, and perhaps staff who don’t pay much attention to their pay stubs don’t notice the lost future income.

The DA’s raid, which included files and computers from Campos’s office, didn’t hurt his candidacy enough to make a difference: On November 2, Campos won his seat on the City Council, succeeding his sister on the body. San Jose’s municipal finances are nothing to write home about, but we bet the city won’t muck around with the benefits packages pledged to City Council members.—Rick Cohen