By Zach Arnold | October 3, 2013
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Food fight at CSAC front office over $5.5 million USD boxer’s pension fund
They won’t be punishing judges Gwen Adair, Marty Denkin, or Carla Caiz at this Monday’s California State Athletic Commission event in Los Angeles. However, the commission’s document dump for Monday’s meeting contains a boatload of information about where things are headed.
For example, page 5 of the 180-page document claims that Karen Chappelle from the Attorney General’s office in Los Angeles is billing the commission a lot of money to handle two major lawsuits (Dwayne Woodard’s age discrimination case & Sarah Waklee’s sexual harassment case). I would suggest so far that the commission has gotten the raw end of that deal in terms of quality legal representation.
On page 18, there is an itemized list of shows and how much revenue/expenses CSAC has from each event. What’s interesting to note is that while boxing revenues are most important, the UFC events are the easiest cash grabs for the commission. A whole lot of money.
On page 41, there is discussion about whether or not the commission will abandon the rules/regulations regarding color-coded tickets. On page 72ish, there are detailed booking sheets revealing which inspectors/officials worked what shows. Around page 100, there’s a copy of a box office sheet that Andy Foster’s #1 inspector, Mark Relyea, completed. Guess he’ll get an award for that.
On page 131, there’s quite a letter from Jeremy Lappen that, on any other occasion, would be a hot topic of discussion. In short, after Andy Foster emasculated CAMO over their fee structure for regulating amateur MMA, CAMO faced a choice — either go with the program or else risk losing their delegation to the controversial Steve Fossum. Instead of putting up a rightful legal challenge in court over what was about to happen to CAMO, Jeremy Lappen simply walked away. With the prospects of money drying up for the non-profit entity, Jeremy Lappen diminished his role with CAMO and left JT Steele at the helm.
However, all of these items are small potatoes compared to the real main event issue at Monday’s commission meeting — and it’s getting little-to-no media attention at all. The issue at hand? What the hell to do with the $5.5 million dollars sitting in the boxer’s pension fund. And the fight could get very ugly between the commission and the third party that is investing & managing the funds.
How will CSAC find all the boxers it owes money to?
Every time you buy a ticket to go to an event regulated by the California State Athletic Commission, a percentage of the money goes to the boxer’s pension fund and the neurological fund. Over the course of many years, the boxer’s pension fund has swollen in size because the commission has simply not been able to reach out to boxers who are entitled to a distribution. The inability of locating boxers who are qualified for a distribution has been atrocious.
With so much money in the bank account, the commission is facing a tough predicament of trying to locate all the new fighters who are qualified to receive a distribution now that they’ve reached the age of 50.
In the state’s Business & Professions Code, Section 18882, the money in the pension fund is dedicated solely for one purpose:
(c) The Boxers’ Pension Fund is a retirement fund, and no moneys within it shall be deposited or transferred to the General Fund.
In the California Code of Regulations, Title 4: Business Regulations, Division 2: State Athletic Commission, Chapter 1: Professional Boxing Rules, Article 12: Pension Plan, some of the rules about who gets a distribution from the pension fund conflict with each other. Section 401 defines the following:
(d) Beneficiary. “Beneficiary” means all persons entitled under the provisions of this Plan to receive benefits after the death of a participating boxer.
Section 405(d) defines what a “lost beneficiary” is.
(d) Lost Beneficiary.
If, according to the records of the commission, a participating boxer has reached age 50 and the participating boxer or his or her beneficiary has not made a claim for benefits, the participating boxer’s accrued benefit shall be held until the last day of the third plan year after the participating boxer reached age 50, at which time it shall be reallocated pursuant to section 403(c); provided, however, that if a claim is later made by the participating boxer or beneficiary for the forfeited benefit, the commission shall reinstate the amount of the vested account balance that had been forfeited, unadjusted by any gains or losses attributable to such amount. Such reinstatement shall be made from the contributions for such year of reinstatement, prior to the allocation of contributions to accounts for the year of reinstatement.
The conflict here is simple. Section 401 says a beneficiary can receive money if the boxer is dead. Section 405(d) says a boxer that is alive has up to three years to claim their distribution before it is forfeited. And given the commission’s track record of not being able to contact or locate fighters who are qualified for distributions, it means a whole lot of fighters who are entitled to a distribution are forfeiting cash that is owed to them. And yet S401 clearly defines a beneficiary as someone OTHER THAN THE BOXER WHO MUST BE DEAD.
And you wonder why the boxer’s pension fund is swelling up with cash that hasn’t been distributed.
These conflicting code sections have set the table for a food fight between CSAC’s front office and the third party that is managing the pension funds.
The first salvo
On July 31st, Beth Harrington (who manages the money in the boxer’s pension fund) wrote a memo to the CSAC front office about why there’s so much money in the bank account. She defended her actions in relation to following the conflicting code sections.
Since the inception of this plan, we have not applied [the Lost Beneficiary] section of the Code as it is written. It was not implemented in part because the section is titled “Lost Beneficiary” and Beneficiary is defined in Section 401(d) as “all persons entitled … to receive benefits after the death of a participating boxer.” The language in the section does not relate to the title of the section. It is conceivable that this section was indeed an option for the commission to forfeit the balance of a deceased boxer in the event that no family could be identified or located, and that it wasn’t intended for boxers who were still living.
The provision was also not implemented because it seems to be inconsistent with Section 404(c) which specifies that “income or loss attributable to the assets of the pension fund … shall be allocated to the accounts of the participating boxers who had unpaid balances in their accounts … as of the last day of the prior plan year.”
Whether we look to implement this section as it relates to retired boxers now, or go back and apply the provision retroactively, there are a variety of reasons that this would be problematic:
1. The fact that the retirement age was dropped from 55 to 50 in 2009 increases the number of boxers subject to this possible forfeiture. That rule change increased the number of boxers eligible for payment from 14 in 2008 to 105 in 2009. Of those 105, 42 were age 53 and would have forfeited at the end of that year. Would it be fair to someone who would have forfeited at age 58 to suddenly be forfeited because he was over age 53?
2. The commission has made an effort to find boxers eligible for payment, but there are still a large number of boxers who have not been located. Is the commission willing to subject a boxer to forfeiture of his pension simply because the boxer has not been located?
3. If we were to forfeit all boxers who were 53 years old as of 12/31/2013 we would be forfeiting 75 accounts worth $1,297,109.
a) The first forfeiture would have taken place in 2007 for one boxer who was born in 1949. That boxer is still not paid.
b) Our reports dated 12/31/2008 that were provided to the commission list 14 boxers who had reached retirement age. Of those 14 only 2 were paid in 2009, and 6 of those 14 are still due $104,611 from the plan.
4. If we go back to revise the 2007 reports to begin the process of forfeiting accounts, all participant balances will change from 2007 forward through 2012.
5. If we begin a process of forfeiting benefits now, the boxers who are eligible in 2013 will received a huge windfall of forfeit allocations. It would give those who boxed in 2013 a huge advantage over anyone who boxed in prior years.
6. Section 405(d) indicates that if a boxer’s account was forfeited and a claim for benefits is submitted later that the benefits should be paid from current contributions. The annual contributions to the plan are only about $100,000. There is significant risk that there would be insufficient funding to restore benefits if all of those over age 53 are forfeited now. How would the commission generate funds if boxers who had forfeited under Section 405(d) are later located and the contributions are not sufficient to re-establish their accounts?
7. The plan has been through two separate audits by the State Auditor, and in neither case was this matter identified as a concern.
This is a defined contribution plan. If one person gets paid or doesn’t get paid, it does not impact the balance of the other participants. If, however, the commission starts forfeiting the balance of Covered boxers at age 53 simply because they did not submit a claim for benefits there could possibly be an outcry that the commission hadn’t done enough to locate the boxers in the first place. If the boxer was found at a later date it would further impact the plan because currently contributions would have to be used to reinstate benefits as opposed to being allocated to those who fought during the year. The allocation of benefits to active participants would swing wildly based on those who forfeited benefits after age 53.
The commission should examine the language in Section 405(d) to determine if it is indeed intended to reference only lost beneficiaries (as is referenced in the title), or if it should also include the reference boxers who have not been located. If the commission does not determine that boxers who have not been located within 3 years of attaining age 50 should forfeit, then additional review of the challenges that this provision will have on the plan should be examined as wlel.
Conflicting codes on the books, a lack of fighters coming forward or being located to pay out distributions, and organizational chaos have led to the paralysis with the funds in the account.
Two months later, CSAC’s front office strikes back
Vern Hines, a DCA employee recently transferred to help Andy Foster out in the CSAC front office, wrote a letter to the commission last week suggesting changes in protocol in how the pension funds are handled. Here’s the text of that memo:
9/25/2013, Implementing the Boxer Pension Fund Lost Beneficiary Provision
1. Failure to implement the Lost Beneficiary Provision 405(d):
The Commission contracts with a third-party administrator, Beth Harrington of Benefit Resources, to administer the Boxer Pension Fund (the Fund). Recently the Commission became aware that Benefit Resources incorrectly administered boxer fund balances dating back to 2007 when provision 405(d) was not followed. Under provision 405(d) of our pension regulations, a boxer has three years to apply for their vested pension benefits. If a boxer does not apply within three years of turning age 50, the boxer forfeits their balance for the benefit of other active plan participants. The provision also allows a boxer to claim their benefit, after it has been forfeited, from current year contributions.
Why is provision 405(d) so important? As the Commission members are probably aware, the boxer pension fund has grown in the past and continues to grow because finding all eligible boxers is a difficult, if not impossible task. As a result, the Fund has grown to almost $5.5 million in assets over the past several years because fund assets were locked in beneficiary accounts that could not be found.
Begin implementing provision 405(d) as soon as possible in order to distribute money that has been frozen in lost beneficiary accounts. By releasing these funds, current boxers participating in the plan will benefit. In fact, we estimate that within the next three years, nearly half of the plan assets, or $2.5 million, may be released to current participants by implementing provision 405(d). As a result, boxers that retire in the near future could see significant increases in their retirement distribution.
2. Problems Implementing the Lost Beneficiary Provision:
The Commission needs to devise a plan that implements the Lost Beneficiary provision as soon as possible while ensuring the future distributions are equitable. As stated above, nearly half of the plan assets will become available within the next few years for distribution, including a $1.3 million distribution that should have already taken place. If the Commission were to distribute all of the required distributions next year, any boxer retiring in that year would receive a large windfall and take money that should have been paid to boxers that retired in the past. The first boxer that should have had his retirement balance forfeit was in 2007.
The Commission should discuss with Benefit Resources what options are feasible to distribute money to boxers that retired from 2008 to 2013. Boxers that retired during this period should have benefited from the Lost Beneficiary clause but did not. Starting in 2014, the Commission should distribute the remaining balance of forfeited accounts over time, instead of one lump sum. The Commission should discuss the pros and cons of distribution over a 1, 3, and 5 year period with our plan administrator, Benefit Resources.
3. Potential Funding Issue for Lost Beneficiaries That Reclaim Their Pension Benefits:
The last big issue with respect to the Lost Beneficiary provision deals with how a boxer reclaims their forfeited benefit. The provision allows a boxer to claim their vested retirement benefit anytime, even after it has been forfeited due to the three year rule. If a boxer comes forward at 65 to claim their benefit that was forfeited at 53, the boxer is entitled to the amount of benefit he would have received at age 50 with no adjustments for investment gains or losses. The provision requires the Commission to pay the boxer from current year distributions to the plan. A problem may arise in the future if more boxers come forward in any given year to claim their forfeited benefit than the fund has in current year contributions. For example, the fund receives approximately $100,000 a year in contributions from an assessment on each ticket sold. How would the Commission pay out lost beneficiary claims of more than $100,000 in any given year? What if current year contributions drop? Additionally, when lost beneficiary claims are paid from current year contributions, boxers that fought in the current year will receive less allocation for that year than they otherwise would have been eligible to receive. As a result, it is important for the Commission to do everything possible to reduce the likelihood that multiple boxers will come forward in any given year where their lost beneficiary claims may exceed current year contributions or significantly reduce the amount of allocations to current year participants.
Boxers have three years to claim their benefit before the Commission is required to forfeit. The Commission should do everything it can to reach out and contact boxers and pay their benefits before they are forfeited. The Commission may want to consider utilizing the Social Security Administration and the Internal Revenue Service features that are available to locate individuals that are due a retirement benefit. For example, a boxer becomes eligible at age 50 to receive their retirement distribution and the Commission must forfeit their benefit at age 53. If the commission does not hear from the boxer by age 52, the Commission could utilize the services stated above to help locate the boxer. As a result, the Commission would reduce the likelihood that a significant number of boxers will re-claim their forfeited accounts to the detriment of current year contributions and allocations. The Commission may want to consider other funding mechanisms to further mitigate the risk of current year contributions not being sufficient to cover lost beneficiary claims in any given year.
This is ugly.
Here’s the problem with the front office’s stance — let’s say in a perfect world that they really start locating all the fighters who deserve a distribution. What are you going to do to generate over $100,000 a year to cover your perfect scenario — raise the pension fund tax on tickets even higher? Second, why should anyone believe that the front office will have a significantly higher success rate in tracking down fighters than past administrators have? Furthermore, who’s going to change the code on the books to make sure none of it conflicts with each other in determining who qualifies for a distribution and when?
Bottom line: this is a giant mess and it looks like Beth Harrington may get thrown under the bus here. On Monday’s meeting agenda, there’s this item:
10. Review of Benefit Resources Pension Administration Contract
Is a business termination coming?