The Cumberland County Commissioners are asking the state Auditor General’s Office for an inquiry into Capital Area Transit, in response to information indicating that CAT’s top executives are receiving benefits from two publicly funded pension plans simultaneously.
This was previously unknown to Cumberland’s representatives, county officials said, and serves to further the county’s skepticism toward CAT.
The accusations build on the already fraught relationship within the transit organization, which is jointly funded and governed by Cumberland and Dauphin counties, and the City of Harrisburg.
Cumberland County officials have been pushing to reorganize CAT under a regional integration plan that would bring the service under the umbrella of RabbitTransit, a York-based public transit consortium. The move would improve service and save money, officials say.
“The issue is that CAT’s management causes it to be a high-cost service provider,” Cumberland County Chief Clerk Larry Thomas said.
Revelations about that inefficient management, including the double pension issue, “continue to reveal why regionalization is the way to go,” Thomas said.
“We need to hit the reset button and move to a much better organization,” Commissioner Gary Eichelberger said.
Although Eichelberger said he and his fellow commissioners were previously unaware of the second pension, its existence is not a secret. CAT’s annual financial statements, available on its website, disclose the details of both pension plans maintained by the organization.
Mike Clapsadl, the county’s deputy controller and one of its representatives on CAT’s board of directors, later clarified that while both pensions were reported, the fact that certain management personnel were eligible for both was not disclosed until he filed a Right-to-Know request to see the details of the plans’ membership.
“I don’t think it’s necessarily out of the ordinary for an organization to have different pension funds for different groups of employees, but the idea that upper management would get both benefits simultaneously is what shocked us,” Clapsadl said.
Clapsadl said he was unable to find any other government-backed organization in the state with a double-benefit setup.
CAT’s management responded last night with a press release that denied attempting to conceal the details of the pension system.
“The plan has been included in CAT financial audits and operating budgets for decades,” Eric Bugaile, CAT’s current board chair, said in the statement. “Under my tenure as board chair all of CAT financials have been audited without a single finding by the auditors, and the board has voted repeatedly to approve those audits and budgets.”
The additional pension benefit system for upper management was set up for executives from the former Harrisburg Railways when it was absorbed by CAT in the 1970s, the release said.
CAT’s financial statements clearly indicate that it maintains two separate pools of money for employee retirement benefits – the one that covers the bulk of its employees is actually called the Disability and Retirement Allowance Plan, while the much smaller executive plan is called the Pension Plan.
While the former covers several hundred bus drivers and other service personnel, the latter covers only 10 upper management employees – four currently working, and six not, according to an audit of the plan provided by Clapsadl.
Like most pensions, both of CAT’s plans guarantee that employees will continue to receive a certain percentage of their salary as a stipend after they retire, depending on how long they have worked. CAT’s executive plan provides up to 40 percent of the employee’s salary post-retirement, on top of the level provided by the rank-and-file plan.
In order to pay for these benefits, money is put into a group fund during employees’ working tenure and invested. Contributions are determined by amortizing the expected future cost of supporting the organizations’ retiree base, minus anticipated investment growth.
The two-fund system employed by CAT is objectionable to Cumberland officials in two ways. First, as mentioned, executives are eligible to “double-dip” by qualifying for both the larger plan and the smaller one, which is exclusive to management.
Secondly, the terms of the executive plan are generous. Like most pensions, the rank-and-file plan requires employees to contribute a certain portion of their paychecks into the pension fund. CAT’s rank-and-file contribute 4.5 percent in order to receive retirement benefits.
But in the management plan, no contribution is required – all contributions to the fund come straight from CAT’s budget, not from executive pay.
Further, those in the executive plan receive full benefits if they have worked either seven years, or are 65, whichever comes first. The rank-and-file plan requires employees to be 65 and have worked at least 10 years.
Because the executive plan covers relatively few people, its total cost is lower than the rank-and-file plan – CAT paid $986,207 into the rank-and-file pension fund in last year’s amortization, according to its public report, and $83,632 into the executive plan.
However, the executive plan is extremely costly in terms of expense relative to the actual value of the employees being covered.
Given that the total rank-and-file payroll is over $9 million, CAT’s payment into the base pension plan last year represented an additional 11 percent expense over the compensation of the covered employees.
But for 2015 – the last year in which total executive pay was disclosed – CAT paid an additional 21.8 percent of executive compensation in pension expense, given that the four active executives earned a collective $375,027.
CAT’s general manager, Bill Jones, resigned last week for unspecified reasons. The organization is being managed by McDonald Transit Associates, a Texas-based firm, according to a CAT news release.
But Cumberland officials said this in itself furthered fiscal mismanagement, since McDonald charges $20,000 per month, plus expenses. They also criticized CAT’s policy of allowing drivers 11 no-shows before they are fired, and an apparent lapse in reporting that caused the organization to temporarily lose its eligibility for Federal Transit Administration funding.
“We discovered here in the past year that CAT lost, for a period of time, its federal transit funding for not complying with reporting requirements,” said Commissioner Jim Hertzler. “The very fact that our own representatives and members of the board have had to file Right-to-Know requests to find all this out should raise eyebrows.”
CAT did not return phone calls seeking corroboration or denial of these details.
The absorption of CAT by RabbitTransit would offer service improvements as well as cost savings, Cumberland officials say. Because regionalization reduces the need for state subsidies, PennDOT offers considerable incentives, including a five-year break on local match funding for transit groups, which would save the county about $1.2 million.
CAT’s board of directors consists of three representatives from Dauphin, two from Cumberland, and two from Harrisburg, although one of the Harrisburg seats is vacant.
Dauphin’s officials have supported merging CAT with Lebanon’s transit services, creating a stalemate in the regionalization process during which Cumberland officials have become increasingly vocal in their criticism of CAT’s current state of affairs.
Cumberland County has provide its share of CAT funding every six months conditional on full transparency, Thomas noted, which the county does not feel has been fulfilled.