Smith, Horgan and Hearn saddled taxpayers with unsustainable pension payouts

While the majority of private companies and many public agencies have opted for a Defined Contribution Benefit Plan (401K), in 2009 our Fayette County government under the former Chairman, Jack Smith, chose to dump the Defined Contribution Plan and replace it with a Defined Benefit Plan, which is considered by many as an expensive “Cadillac” plan.

The plan was proposed and approved by the former Chairman, Jack Smith, and current Commissioners Lee Hearn and Robert Horgan. Herb Frady voted against the plan and former Commissioner Eric Maxwell abstained. Mr. Frady was the only one that got it right.

At the time the DB Plan was being considered, many citizens warned them not to switch plans but they went ahead with it anyway. At a meeting held when the plan was being approved, Smith claimed the plan would save the county millions of dollars in the future. His arrogance, rudeness, and refusal to listen to anyone daring to speak in opposition to anything he came up with were typical.

Our warnings have already proven right and the plan is only three years old. Messrs. Smith, Hearn, and Horgan have been quoted several times in The Citizen, and at campaign debates in 2010 and again in 2012, that the plan was working as intended and is saving the taxpayers millions of dollars.

All three of them are currently campaigning for re-election and touting their leadership roles in switching to a DB plan. Well, my analysis proves they were wrong in 2009 and they are still wrong in 2012.

The California cities of Stockton, San Bernardino and Mammoth Lake voted to file bankruptcy in the last two weeks. Each of them cited unsustainable pension benefits and medical insurance coverage to retirees as the reason for filing bankruptcy. Current wisdom says this is only the beginning.

A recent Pew Report and numerous newspaper articles have commented about the trillions (yes trillions) of dollars of unfunded and unrecognized liabilities that public agencies have to deal with amid plummeting revenues and soaring pension and healthcare costs.

One article said, “You can expect many more bankruptcies, and we the lowly taxpayers, will be required to pick up the tab for this nationwide problem.”

In a CNN article on 7/12/12 entitled “California bankruptcies are only the beginning and that’s not to say that the residents and workers in the bankrupt towns won’t feel the pain. They will likely suffer from reduced services and their employees will likely find they have to pay more into their pension and health funds, if they are lucky enough to keep their jobs.”

DB Plans always look attractive at the beginning but they become a train wreck as employees age and retire. Again, Smith, Hearn and Horgan were warned about this but I don’t think they cared what other people had to say anyway.

The DB plan has already proven to be more expensive and the costs will continue to grow. The commissioners’ decision to switch plans was wrong on so many fundamental levels.

Every knowledgeable financial professional I know, with the exception of the former Chairman Jack Smith, CPA, is in full agreement with me that a DB Plan can be toxic. Just look at what happened in just two short weeks in California.

Cal Beverly, editor of The Citizen Newspapers, in an article published the day after the 2010 election wrote an outstanding article that was entitled, “Lessons to be learned from the July 20 vote.” It stated, among other things, “to both the commissioners-elect, remember whose servant you are. I’ll be explicit: You are not put there to serve the government employees. You are put there to serve the taxpayers of this county. Sometimes — unfortunately and I hope rarely — you will find the interests of the employees will be at odds with the interests of the taxpayers. Don’t forget who is paying the salaries of all of you. You work for us; we don’t work for you.” Read the full article…

Smith, Horgan and Hearn were apparently trying to serve the wrong masters and let their blind allegiance to other interests cloud their judgment.

Please do not re-elect Smith, Hearn or Horgan. They have done enough damage already! My slogan: ABBTT (anybody but these three).

Click on the following link to read an article I wrote for The Citizen Newspaper on 6/10/12 entitled “How did we let this spending happen?” (

Hall County, Georgia had a defined benefit plan, which was frozen to new participants effective July 1998. They discovered that the defined benefit plan was not sustainable and they switched to a defined contribution plan for all new employees. As of January 2011, the defined benefit plan’s unfunded liability (the excess of liabilities over assets) was a whopping $27 million dollars. The commissioners of Hall County did a thorough investigation and came up with the right answer. Goggle Hall County, Ga., CAFR 2011 and go to page 38, Note 10 of the audited financial statements.

Did Smith, Hearn, and Horgan do a proper due diligence investigation before putting the taxpayers of Fayette County on the hook for this ill-advised DB plan? The argument they use is that employees were being lost to other employers because the county’s DC plan was not competitive. Has the employee turnover rate improved enough to justify potentially bankrupting the county in the future?

It would be interesting to know who came up with the idea of prepaying over $1.249 million to the pension plan administrator at the beginning of 2012 and over $800 thousand at the beginning of 2011.

I will have more to say about the early retirement plan in an article next week.

The spreadsheet analysis and supporting data I prepared are too big to fit into a newspaper article. Go to

Jim Richter, CPA (Ret.)

Peachtree City, Ga.