By Adam Pagnucco.
There is an epic war going on behind closed doors which is only now becoming public.
The first visible shots could be seen in my post on the pending move of the county retiree benefits office from free space in the county executive office building to leased space costing millions. Then the three county employee union presidents got involved, sending me a comment alleging further problems in the administration of these benefits. That provoked pushback from the county’s former benefit funds executive director, who accused the union presidents of “defamatory smears and bullying.”
So what’s really at stake here? It’s all about more than eight billion dollars in pension and retiree health care money maintained in trust by county government. Right now, that money is overseen by a hybrid arrangement of two appointed boards (the Board of Investment Trustees and the Consolidated Retiree Health Benefits Trust) and the county’s chief administrative officer, who appoints the funds’ executive director and sets actuarial rates. That system has worked smoothly for many years, but it is now plagued by a savage – and until now, silent – war for control of this money.
Out of public view, shots were fired between the union presidents and County Executive Marc Elrich last December. In a pair of harshly worded letters, the union presidents accused Chief Administrative Officer Rich Madaleno of misconduct and Elrich rose to his strong defense. Bear in mind that Elrich is one of the closest allies these unions have ever had, but he went tooth and nail against them – in writing. The whole issue is now coming to a head in legislation sponsored by Council Members Andrew Friedson, Kate Stewart, Sidney Katz and Dawn Luedtke that would reduce the powers of the chief administrative officer over the benefit funds.
Reprinted below are the two letters from the union presidents to Elrich and from Elrich in reply. Yes, the details are challenging to get through but pay attention to the fierce tone. And also bear in mind that as a taxpayer, you’re paying for this.
More to come.
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Document One: The union presidents’ letter to Elrich, dated December 3, 2024.
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Dear County Executive Eirich:
Subject: Serious Concerns Regarding the Conduct of Chief Administrative Officer Rich Madaleno.
We, the undersigned representatives of UFCW Local 1994 MCGEO, FOP Lodge 35, and IAFF Local 1664, are writing to express our deep frustration and concern regarding the actions and interference of Chief Administrative Officer Rich Madaleno in the operations of the Board of Investment Trustees (BIT) and Consolidated Retiree Health Benefits Board of Trustees (CRHBT). His actions undermine the fiduciary independence of the Boards and threaten the governance practices necessary to protect plan participants and beneficiaries.
For over a year, the Board of Investment Trustees and Consolidated Retiree Health Benefits Trust Board of Trustees have engaged in an in-depth evaluation of their governance structures in order to implement best practices that serve the interests of the plans’ participants and beneficiaries. In July 2024, both Boards passed a motion recommending an implementation plan that included key governance reforms:
1. Granting authority for the Boards to set actuarial assumptions and hire consulting actuaries and service providers.
2. Empowering the Boards to hire, oversee, and compensate their executive director and staff competitively, while preserving merit system protections.
3. Amending the Memorandum of Understanding between the Boards and the Office of the County Attorney to fulfill their fiduciary responsibilities and prioritize members’ interests over County political influence.
To facilitate these changes, the Boards established a committee, composed of trustees, to develop an implementation plan, work with the County Council, and coordinate necessary code changes. This committee’s work is crucial to ensuring the independence and fiduciary accountability of the Boards.
Unfortunately, it has become clear that Mr. Madaleno has interfered at every turn to block these reforms and subvert the Boards’ efforts:
1. Unilateral Actions and Lack of Collaboration: On August 16, 2024, Fariba Kassiri, acting on behalf of Mr. Madalene, unilaterally scheduled a committee meeting for September 27 without consulting members for availability. During this meeting, the committee members who were able to attend, led by appointee Joseph Beach, deviated from the Boards’ approved motion and attempted to create a Memorandum of Understanding (MOU) that contradicted the agreed-upon governance reforms. This overreach has eroded the Boards’ independence and confused trustees.
2. Undermining Board Decisions: At the October meeting, Mr. Beach presented the new MOU as the sole path forward and prioritized the MOU over necessary code changes. Shortly after, it became evident that the County Council was preparing to introduce legislation to enact the Boards’ approved July motion. In response, Mr. Madaleno and his deputies have begun spreading misinformation and attempting to deter council members from seeking necessary code changes.
3. Improper Discipline Requests: In an egregious example of interference, Mr. Beach and Linda Herman have communicated with Ms. Kassiri and Mr. Madaleno in an attempt to discipline the MCERP Executive Director for fulfilling his fiduciary duty to answer trustees’ questions, in violation of your office’s duty to abstain from interference in the work of the pension and retiree healthcare funds. These actions bypassed proper channels and board leadership, highlighting a troubling disregard for governance norms and accountability, and demonstrating the need for new Executive Director oversight.
4. Ethical Failures: Mr. Madaleno has threatened to remove the bargained union leadership positions from the pension board, in direct violation of collective bargaining law. He has also proposed seeking legislation to alter the board’s current ESG policy and redirect pension funds toward affordable housing investments. Such actions have sparked lawsuits nationwide for failing to prioritize the best interests of plan members and beneficiaries. Mr. Madaleno’s spiteful threats and retaliatory efforts (which seem to be stemming from his opposition to the board’s pursuit of governance reforms aligned with best practices) could embroil the County in costly litigation.
These actions, led and enabled by Mr. Madaleno, reflect a blatant disregard for the independence of the Pension and Retiree Health Benefits Fund’s trustees and their fiduciary responsibilities. His interference compromises the trust and functionality of these critical institutions, putting the financial security of plan participants and beneficiaries at risk. This pattern of collusion, misinformation, and administrative overreach is unacceptable.
From previous conversations with you regarding this matter, we know that your position is not to oppose code changes being sought by the boards. You have previously stated that you have not directed any of your staff to oppose or obstruct the code changes to the BIT and CRHBT. We demand an immediate end to this interference and call on your administration to respect the independence and fiduciary responsibilities of the Boards. Further, we insist on accountability for the actions of Mr. Madaleno who has prioritized personal or political agendas over the well-being of plan participants.
The Boards of Investment Trustees and Consolidated Retiree Health Benefits Boards of Trustees exist to protect the interests of employees and retirees, not to serve as tools for political manipulation. We urge you to take swift and decisive action to restore their integrity and ensure that their governance practices remain independent and focused solely on their fiduciary mission.
Lee Holland
President
FOP Lodge 35
Jeffrey Buddle
President
IAFF Local 1664
Gino Renne
President
UFCW Local 1994 MCGEO
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Document Two: Elrich’s letter to the union presidents, dated December 27, 2024.
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Dear Mr. Holland, Mr. Buddle and Mr. Renne:
I read your December 3, 2024 letter, and I have worked with my staff to investigate your allegations. You wrongfully accuse the Chief Administrative Officer (CAO), Rich Madaleno, of interfering with reforms recommended by the Board of Investment Trustees (BIT) and Consolidated Retiree Health Benefits Board of Trustees (CRHBT). You further wrongfully accuse the CAO of “ethical failures.” The letter contains factual inaccuracies, and there is no evidence to support these allegations.
In your letter, you indicate that “for over a year,” the Boards “have engaged in an in-depth evaluation of their governance structures in order to implement best practices that serve the interests of the plans’ participants and beneficiaries.” I understand that the Boards’ evaluation started at the Boards’ Fall 2023 meeting and was followed by a vote at the July 2024 board meeting, and, as I understand, it was further discussed at the October 2024 meeting (more on that below).
As you note in your letter, the Board laid out 3 proposed changes and at the July 2024 meeting named a committee that was “intended to assist in developing an implementation plan and coordinating with Montgomery County Government to accomplish the necessary code changes and developing a memorandum of understanding with the County Attorney that satisfies the needs of the Boards.” (Source: July 26, 2024 minutes). In your letter, you accuse the CAO of unilateral action and lack of collaboration, which is surprising and inaccurate. Since that 2023 Fall meeting and until the September 27, 2024 committee meeting (which is discussed below), the Boards and the Executive Director, Eli Martinez, failed to collaborate with the CAO, who by law is the Plan Administrator, and is ultimately responsible for the administration and governance of the Plans. The Boards’ authority is limited to investment of fund assets. Prior to the September 27, 2024 committee meeting, I am told that the Boards and the Executive Director failed to seek any input from the CAO, who is the Plan Administrator. Further the Boards have not approved specific legislative changes to the County Code for the Pension Plans, and yet you and the Executive Director directly contacted Councilmembers seeking legislation contrary to the collective will of the Boards and without any input from the CAO. (I further discuss below the will of the Board as expressed at the October 17, 2024 meeting.)
You also allege that the CAO, directed the Deputy CAO, Fariba Kassiri, to “unilaterally schedule a committee meeting for September 27, 2024, without consulting members for their availability.” This statement is false. At the July 26, 2024 Board meeting, the Boards passed resolution 2407-02 which specifically states as follows:
“Approved developing an implementation plan to recommend to the Montgomery County Government County Council that includes 1) giving the Boards the ability to set actuarial assumptions and selecting and hiring a Consulting Actuary and service providers for the Plans, 2) selecting, hiring, overseeing, and setting a compensation structure for the Boards executive director and exploring options for providing a more competitive salary for staff while still maintaining merit system protections, and 3) determining how the Boards can obtain legal advice that supports their fiduciary responsibilities and focuses on how best to protect members, beneficiaries, participants, and dependents-which could require independent legal counsel to determine the relative roles and responsibilities of the County Attorney and Counsel to the Boards. Additionally, the Boards approved creating a committee empowered to act on behalf of the Boards, composed of Lee Holland, Elizabeth Greaney, Caven West, Joseph Beach, and Michael Coveyou, intended to assist in developing an implementation plan and coordinating with Montgomery County Government to accomplish the necessary code changes and developing a memorandum of understanding with the County Attorney that satisfies the needs of the Boards. The committee, through the executive director, will report milestones to the Boards to keep all trustees informed. Furthermore, the Executive Director may secure, on behalf of the Board, industry experts at a cost of approximately $75,000, split 50/50 between ERS and CRHBT plans, to assist in the development of the implementation plan and long-term strategic plan.”
The September 27, 2024 meeting between the Committee and the CAO was scheduled in the following way. On July 9, 2024, MCERP’s Executive Director, Eli Martinez, sent an email to the CAO requesting a meeting to discuss the proposed BIT Governance issues, including “Selecting, hiring, overseeing, and setting a compensation structure for the MCERP Executive Director and exploring options for providing a more competitive salary for staff while still maintaining merit system protections.” The CAO reminded Mr. Martinez that to avoid an ethics violation, he should not be involved in any matters that include his own compensation or reporting authority. On July 15, 2024, the CAO met with the Chairs of BIT and CRHBT Committees to discuss the proposed BIT Governance. On August 7, 2024, the CAO met with Mr. Martinez and informed him that he, as CAO, would be directly dealing with the Boards on Governance matters and again reminded Mr. Martinez that to avoid an ethics violation, he must avoid involvement in any aspects of matters involving his own compensation or reporting authority.
On August 19, 2024, after coordination with all the participants, the September 27, 2024 meeting was scheduled with the Boards’ delegated Committee (Lee Holland, Elizabeth Greaney, Caven West, Joseph Beach, and Michael Coveyou), Robert Doody, the County Attorney, the DCAO, and the CAO. Everyone received an email invitation to the meeting. Mr. Holland was the only one who did not attend the meeting of the designated committee. At the committee meeting, it was agreed by all of the participants that an MOU between the Boards and the CAO would be appropriate to address setting the rate of return among other issues. Your letter refers to the October meeting – from which there are no minutes available – and say that the CAO – via Board member Joseph Beach – undermined Board decisions. However, it sounds as if Mr. Beach was reporting on the decision of the committee, which had been empowered by the Board to explore the options.
It is my understanding that at the October 17, 2024 meeting, the Board members had discussion about the BIT Governance and MOU option. Board member Joseph Beach reported that the committee members met with County representatives to discuss the Boards’ concerns. (That is the September 27 meeting referenced above.) The committee recommended that the Boards not seek legislative changes to the law based upon concerns that (1) proposing legislation could embroil the Boards in a public controversy, which could impede prompt resolution of the Boards’ concerns and (2) any proposed legislation might be significantly amended after it was transmitted to the Council. Instead, the Committee suggested that the Boards’ concerns could be addressed by either amending the existing MOU with the County Attorney’s Office (regarding the provision of legal services) and/or entering into another MOU with the CAO to address (1) obtaining non-legal services, (2) cooperation in setting actuarial assumptions, and (3) executive compensation. Then, Mr. Beach presented drafts of the proposed MOUs to the members of the Boards. The Boards reviewed the draft MOUs, and members suggested various matters they wanted to see addressed in the MOUs (e.g., time limits for the County Attorney to respond to a request for appointment of outside counsel). The Boards then voted to have the Committee finalize the draft MOUs (based upon edits suggested by Board members) for presentation to the Boards for final action. The matter was brought to a vote and was passed by the Boards with only Lee Holland opposed. There is no evidence to support your claims of overreach, lack of collaboration, or attempts to undermine the Boards by the CAO. Furthermore, it appears that you and the Executive Director are the ones that are actually undermining the decision of the Boards by directly contacting the County Council seeking legislative changes even though the Boards voted at the October 17, 2024 meeting for the committee to finalize the MOUs and present them to the Boards to review.
You also allege improper discipline requests and interference in the work of the pension and retiree health care funds. I repeat that under current law, it is the CAO who is the Plan administrator – he has a right – and a need – to understand the deliberations. You also incorrectly state that the CAO has threatened to remove the bargained union leadership positions from the pension board – as I understand it, when the CAO was presented with the changes advocated by you and the MCERP Executive Director, Eli Martinez, as “best practices”, the CAO pointed out that the same report included “best practices” of no beneficiaries being on the Board. That does not mean he supports that “best practice”; he used it as an example to illustrate the fact that not everything in the report needed to be taken as a requirement for change. And, toward that end, it seems it would be most productive to discuss potentially positive “best practices” rather than presenting them as a fait accompli via legislation that had not been reviewed and approved by the Boards.
In another issue you raise in your letter, you are concerned that the CAO is raising possibilities of the funds being invested in affordable housing and/or divesting of fossil fuels. Other similar funds have been highly successful with these practices, and I have long stated publicly that I am interested in reviewing and possibly pursuing these options, if agreed to by the Boards. Even if you disagree with the concept, it is not an “ethical failure” to raise these issues.
The Plans’ existing governance model was created to make the Boards responsible for investments, the CAO responsible for benefits administration, the Finance Director responsible for custody of the assets, and the County Council responsible for benefits decisions. This division of responsibilities was intended to create strong internal controls and a system of checks and balances over the retirement assets, which now total $8 billion. This model has produced excellent results in terms of the funds’ investment performance and progress in meeting funding goals, to the benefit of retirees, employees (future retirees), and taxpayers.
Despite the longstanding success of the County’s pension plans, I am not necessarily opposed to any proposed changes by the Boards, provided the Boards, the CAO, who is the Plan Administrator, and I engage in thoughtful discussions regarding the impact of any proposed changes. As you well know, my staff, including the CAO Rich Madaleno, and I take our fiduciary responsibilities extremely seriously and we do not place personal or political gain over the sound management of the County and its finances. The rating agencies have continually praised our strong management team, and we will continue to place the interests of County residents, employees and retirees at the forefront of all our decisions. I am puzzled by your inaccurate, troubling letter; I do not understand why you are determined not to raise these issues directly with the Boards; let’s have that conversation with the entire Boards. I know that Board members take their responsibilities seriously, and we want to work together to make sure their concerns are addressed as we continue to put the best interest of the pension plans in the forefront.
Sincerely,
Marc Elrich
County Executive