Overview
The Public Employee Retirement Administration Commission (PERAC) did not review and approve all disability retirement benefits calculated by local retirement boards. Specifically, during our audit period, PERAC did not approve the benefit calculations for 30 (16%) of the 191 approved disability retirement benefit cases we examined. As a result, there is a higher-than-acceptable risk that inaccurate benefit payments could be paid to recipients of disability retirement benefits.
These calculations either have not been received or are in the process of being reviewed by PERAC; therefore, we were unable to verify their accuracy. For the calculations we were able to review, we did not identify any errors.
After PERAC approves a retirement board’s decision to grant a disability retirement benefit, the retirement board calculates the benefit and forwards it to PERAC for its approval before making the first payment to the applicant. In 8 of the 120 approved disability retirement benefit cases we reviewed, we could not locate evidence of PERAC’s approval of the benefit calculation. Of these 8 instances, 5 came from the Boston Retirement System. We then reviewed the remaining 71 approved disability retirement benefit cases from the Boston Retirement System and identified an additional 22 instances in which benefit calculations had not been approved.
Authoritative Guidance
Under Section 21(3) of Chapter 32 of the Massachusetts General Laws, PERAC is required to approve the amounts of disability retirement benefits granted by retirement boards.
Reasons for Issue
PERAC has not implemented monitoring controls to ensure that it receives all disability retirement benefit calculations and related documentation from retirement boards. PERAC acknowledged that internal controls were not in place to ensure that disability applications approved by the Legal Unit were always reviewed by the Actuarial Unit as required by statute.
PERAC officials indicated that for 14 of the 30 cases in which benefit amounts had not been approved by PERAC, the agency had received the calculations from the retirement boards but needed further clarification; however, the retirement boards had not responded to requests for clarification. For 13 of the 30 cases, PERAC officials indicated that the retirement boards never sent the calculations and necessary information for approval. For the remaining 3 cases, PERAC Actuarial Unit staff members said that they had received the calculations but had not yet reviewed them. PERAC officials were unable to provide a reason for not having reviewed these calculations yet.
Recommendations
- PERAC should perform reviews to identify all disability retirement benefits for which benefit calculations have not been approved.
- PERAC should develop and implement monitoring controls to ensure that retirement boards follow its existing regulations. These controls should ensure that all required disability retirement benefit calculations and necessary documentation are submitted to PERAC for approval before the board makes the first payment to the applicant. The controls could include communication between PERAC’s Legal and Actuarial Units to ensure that the Actuarial Unit stays informed of newly approved retirement cases for which a benefit calculation will need to be approved.
Auditee’s Response
Overall, we are pleased that the State Auditor’s comprehensive review of our disability process found full compliance with the medical and legal requirements of the disability process. Nonetheless, we take seriously the finding that the disability calculation process lacked sufficient controls to ensure that all disability calculations were reviewed by PERAC’s Actuarial Unit. Since receipt of the draft [report] . . . we have taken steps to address any outstanding calculations and established controls to prevent a reoccurrence of the identified issue.
The Draft Audit identified [17] applications that were in the office but had not been timely reviewed and approved by the Actuarial Unit; [14] had been initially reviewed but held due to concerns with the Board’s calculation, and 3 had not yet been reviewed at all. Be advised that in each case the review has been completed and letters of approval have been sent to the Board. . . .
PERAC has also established an additional protocol between the Legal and Actuarial Units to ensure that all disabilities approved by the Legal Unit are submitted by boards and reviewed by the Actuarial Unit. Each quarter, information on all disabilities approved by the Legal Unit will be provided to the Actuarial Unit through a shared spreadsheet, which will then be updated by Actuarial staff as applications are received and approved. This will ensure that all applications are submitted, and establish a timeline to follow up on applications that have not been submitted.
| Date published: | June 28, 2018 |
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