The Division of Pensions and Benefits saved an estimated $59 million by removing improperly enrolled contractors from State’s pension system, but hundreds of cases remain unresolved years later, OSC report finds

State could save significantly more taxpayer funds by efficiently resolving the backlog of investigations into ineligibly enrolled contractors

TRENTON – An investigation released today by the Office of the State Comptroller (OSC) finds that the Division of Pensions and Benefits (DPB) in the Department of the Treasury is struggling to clear a backlog of investigations into 241 professional service providers (PSPs) improperly enrolled in the State’s pension system.

OSC’s new report finds that DPB has saved taxpayers an estimated $59 million to date by removing or reducing pension benefits for ineligible individuals. However, the report also found that investigations have been impeded by a lack of cooperation from public employers and understaffing. The current-day backlog includes investigations into 60 PSPs improperly enrolled in the pension system whom OSC first identified in 2012.

“DPB has made significant progress in ridding the pension system of abuse and enforcing state law, but challenges and inefficiencies remain,” said Acting State Comptroller Kevin D. Walsh. “At the current pace, there is no end in sight. The State will do a better job protecting pension funds if we find ways to clear the backlog faster and if the Legislature gives DPB the powers it needs to more aggressively identify abuses of the pension fund.”

Since 2007, state law has made clear that public employers must remove PSPs from the pension system if they are independent contractors, not bona fide public employees.

A 2012 OSC report originally found that an overwhelming majority of municipalities and school districts were violating state law by allowing PSPs – mostly attorneys who maintained private law practices – to earn pension credits, costing taxpayers millions of dollars. In addition, PSPs were enrolling for a public pension multiple times, a practice known as “tacking.” In response to those findings, the Pension Fraud and Abuse Unit was established within DPB to investigate claims of abuse in the pension system.

In its new investigation, OSC sampled PSPs who performed work for more than 100 municipalities and school districts and found overwhelmingly that they were not improperly enrolled in the pension system – a significant improvement from the 2012 report.

But OSC also found that frequent delays and a lack of cooperation from municipalities and school districts have slowed DPB’s progress in rooting out abuse. Public entities often resist requests for information when they are under investigation. In one example, a Central Jersey municipality took three years and six separate requests to provide requested information.

DPB does not have the same authority to compel compliance that other investigatory bodies do, OSC’s report found. DPB could perform its work more efficiently if it was given additional authority, such as subpoena power or the ability to refer the chief financial officer or certifying officer of a non-compliant entity for violations of the Local Government Ethics Law.

Staff capacity has also limited DPB’s ability to investigate abuse of the pension system beyond municipalities and school districts. Three investigators are tasked with conducting all investigations of PSPs improperly enrolled in the pension system. Staff limitations have prevented DPB from proactively investigating improperly enrolled PSPs beyond municipalities and school districts. With its current backlog cleared, DPB would be able to investigate the many authorities, commissions, fire districts, and independent entities in New Jersey that may have improperly enrolled PSPs in the pension fund.

“There is more money to be saved here,” said Walsh. “Allowing independent contractors to draw down pension benefits drains New Jersey’s pension system and requires taxpayers to pay a pension to someone who never should have been in the pension system to begin with.”

To report government fraud, waste, mismanagement or corruption, file a complaint with OSC or call 1-855-OSC-TIPS.

The Office of the State Comptroller (OSC) is an independent State agency that works to make government in New Jersey more efficient, transparent and accountable. OSC is tasked with examining all aspects of government expenditures, conducts audits and investigations of government agencies throughout New Jersey, reviews government contracts, and works to detect and prevent fraud, waste and abuse in Medicaid.

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