Alameda County California, DAB No. 514 (1984)

GAB Decision 514
Docket No. 83-234

February 29, 1984

Alameda County California;
Ballard, Judith; Settle, Norval Garrett, Donald


Alameda County, California (County) appealed the decision of the
Acting Director, Intergovernmental and Congressional Affairs (ICA) /1,/,
regarding the allocation of certain retirement fund administration
costs. Briefly, that decision was that the cost of retirement fund
administration is borne by the retirement fund's assets and since the
federal government contributes to these assets through the payment of
employee salaries, the County cannot recover the same retirement
expenses through its county-wide cost allocation plan (CWCAP) because
this would result in a duplicate recovery of costs.


For the reasons discussed below, we sustain the disallowance.

I. Background

The following facts are not in dispute. The Alameda County
Employees' Retirement Association (Retirement Fund) is a trust fund
established by the County as the trustee of benefits owed to
participating employees. Contributions to the Retirement Fund are in
the form of employee and employer contributions. The employer's share
of the (2) Retirement Fund contributions are included as direct charges
to operating programs and activities, including federal awards.

Prior to 1976, the Retirement Fund's administration costs were
included as an allowable cost in the CWCAP since the expenses were paid
from the County's General Fund. However, on July 1, 1975 the County's
Board of Retirement adopted California Government Code Section 31580.2
which provides in part that:

the respective boards shall annually adopt a budget covering the
entire expense of administration of the retirement system which expense
shall be charged against the earnings of the retirement fund.

Beginning with the 1976/77 cost plan, the County excluded retirement
administration costs because of section 31580.2.

During 1980, the County requested the California State Controller's
Bureau of County Cost Plans (BCCP) approval to include the cost of
retirement administration in its cost allocation plan. The County also
requested approval to include 1976/77, 1977/78 and 1978/79 retirement
administration expenses in its 1980/81 plan.

The BCCP determined that section 31580.2 precluded payment of
administrative expenses from other than the Retirement Fund and,
therefore, the costs could not be allocated through the CWCAP. State
Controller's March 15, 1983 Decision Letter. The BCCP also found that
the contribution rate to the Retirement Fund can be assumed to include a
factor for administration costs and, therefore, including the costs in
the CWCAP would result in a duplicate recovery. Id.

The BCCP's decision was upheld on appeal by the Agency's Director,
Division of Cost Allocation, whose decision was in turn upheld by the
Acting Director, ICA. The Acting Director, ICA's decision is the
subject of this appeal.

It is not contested that the administration costs are allowable and
allocable to the Retirement Fund. The sole issue before the Board is
whether or not the administrative costs may be included in the CWCAP.

(3) II. Discussion

The County asserted that because retirement administration is paid
out of retirement (investment) earnings and not from employee or
employer contributions, federal awards have not contributed to the cost
of retirement administration. The County contended that, to recover
these allowable administrative costs, the costs should be included in
the CWCAP. County Brief, p. 2.

The Agency argued that the administration costs are direct costs of
the Retirement Fund which are directly billed to the County and the
Agency. Agency Brief, p. 4. The Agency asserted that the costs cannot
now be included in the CWCAP, otherwise a duplicate recovery of the
costs would occur. Id.

The County contended that the costs directly charged to the Fund are
the costs of current and future retirement benefits and that:

the cost of retirement administration . . . is expensed from interest
earnings generated from retirement fund investments.

County Reply Brief, p. 1.

The County argued that since the administrative costs are paid from
interest earnings, the Agency did not contribute to their payment. Id.

The Agency asserted that the administration expenses are paid out of
the investment earnings of the fund. The Agency asserted further that
these earnings are the result of investing the assets to which the
federal programs contributed. As such, the federal programs contributed
to the administration costs. The Agency also asserted that since
retirement administration expenses are borne by the fund as a whole,
either the contribution rate must be increased or benefits decreased in
order to prevent depletion of the fund. ICA Director's October 3, 1983
Decision Letter, p. 5.

The County argued that it is not required to recognize interest
earnings as a form of federal participation, citing OASC-10, p. 6. In
addition, the County asserted that its (4) actuaries stated that the
administrative costs have not had a direct bearing on the employer
requirement contribution rates and would not affect the contributions
unless there was a significant change in past practice or law.

We are not persuaded by the County's arguments. The County argued in
essence that the administrative costs are not included in the direct
charges and, therefore, the costs should be included in the CWCAP.
However, the County loses sight of the fact that the administrative
costs can be identified specifically with the Retirement Fund and are,
therefore, direct costs of the Fund. See, OMB Circular A-87, Attch. A,
E.1. To include those costs in the CWCAP would result in allocating the
costs to non-benefitting programs in violation of Agency program
requirements (id. at C.2), and generally accepted accounting principles.

It would also appear that including these costs in the CWCAP would be
violative of State Code section 31580.2. The parties did not discuss in
depth the effects of section 31580.2 on the costs in this case.
However, the County Counsel, in response to a request by the County
Administrator, interpreted this section to preclude the County from
directly or indirectly providing funds for administrative expenses of
the fund. County Ex. 4. The County did not attempt to explain how the
County Counsel's opinion was wrong or distinguish that opinion from the
facts in this case. Even if the County's proposal did not violate
federal requirements, which we conclude it does, the proposal presumably
would violate the State Code since the County would contribute to the
Retirement Fund through the CWCAP, thereby making the costs unallowable
charges to the federal grant programs. See, OMB Circular A-87, Attch.
A., C.l.b.

While the County could argue that it intended to allocate the costs
to only the federal programs through the CWCAP and thus not violate
section 31580.2, this would result in inconsistent treatment of the
administrative costs. OMB Circular A-87, Attach. A, C.l.d provides that
for costs to be allowable they must:

Be consistent with policies, regulations, and procedures that apply
uniformly to both federally assisted and other activities of the unit of
government of which the grantee is part.

(5) We have previously interpreted this provision to prohibit
treating federally assisted programs differently than non-federally
assisted programs in determining their respective contributions to a
pension fund. Indiana Public Employees' Retirement Fund, Decision No.
314, June 24, 1982. Any allocation of the administrative costs to
federal programs not made equally to the County would violate this
consistency of treatment principle and, therefore, would be unallowable.

We also find that including these costs in the CWCAP could result in
a duplicate recovery. Although the County consistently claimed that the
Agency did not participate in the payment of administrative costs, the
Retirement Fund's financial statements for 1980 show its payment of
$317,187 in administrative costs. Also, the County's actuary, while
stating that administrative costs are not considered in calculating the
contribution rate, recognized that administrative costs could
"indirectly" affect one of the factors in the contribution rate. County
Ex. 3. In addition, the County stated in its brief that:

there is no dispute that to some undeterminable extent Federal funds
contribute to assets that generate interest earnings which pay for
administrative cost.

County Brief, p. 4.

Since the County recognized that at least to some extent the Agency
contributed to the payment of the administrative expenses, the recovery
of these costs through the CWCAP would result in a duplicate recovery of
these costs.

It is important to note that our decision merely precludes the County
from recovering these administrative costs through the CWCAP. Our
decision does not address whether recovery is available through other
means. The Agency did not contest the allowability of these costs. In
fact, the Agency implicitly recognized that it might participate in the
payment of the administrative costs through a higher contribution rate
than is presently being charged. The Agency stated that retirement
administration is an expense of the Retirement Fund and not an expense
of the County and:

(s)ince retirement administration expenses are born by the retirement
fund as a whole, over time, either the contribution would be increased
or the benefits would (6) be decreased or a combination of the two would
occur to account for the depletion of the fund assets for the payment of
retirement administration expenses.

Director, Division of Cost Allocation's June 20, 1983 Decision
Letter, pp. 3-4.

The County acknowledged that there are at least three methods of
recovering these administrative costs, one of which is through the
CWCAP. County's December 13, 1982 Letter. We find only that the use of
the CWCAP to recover the costs is improper, and we do not express an
opinion on the propriety of the other methods.

III. Conclusion

Based on the analysis above, we sustain the Agency's determination
that the County's Retirement Fund's administrative costs cannot be
allocated through the CWCAP. /1/ The Acting Director, ICA was
designated by the Department of Health and Human Services
Regional Director to review the County's appeal pursuant to 45 CFR Part
75 from the determination of the Director, Division of Cost Allocation,
Region IX. Section 75.6(d) of Title 45 CFR provides for review by the
Regional Director or his delegate. When we refer to the "Agency" in
this decision, we mean any of the following: The Regional Director,
Region IX; the Director, Division of Cost Allocation; or, the Acting
Director, ICA.

NOVEMBER 14, 1984