CWSC Shareholders Begin to Receive Answers

By Will Johnson

Messenger Reporter

HOUSTON COUNTY – After three months of demanding answers to questions about management practices at Consolidated Water Supply Corporation (CWSC), shareholders endured a four hour meeting on Tuesday, Jan. 10 before any type of response was given.

The meeting was scheduled to begin at 6 p.m. but was delayed for over 15 minutes because none of the CWSC board officers were present. President John Massengill had informed CWSC attorney Patrick Lindner he would be late, while Vice President Carey Minter had recently resigned her position on the board. No explanation was given for the absence of Secretary Frank Wilson.

The majority of the questions which had gone unanswered pertained to the CWSC retirement plan and included the following:

• What are the elements of the retirement plan?
• What are the contribution limits?
• What are the matching limits?
• What is the change to the plan and was it approved by this board? If so, when and where is the documentation?
• Why was an insurance claim filed?
• What is the status of that claim?
• Has the provider offered any settlement conditions?

After over two hours in executive session, the board emerged from behind closed doors and authorized the attorney to read a letter to the shareholders in an attempt to answer some of the questions asked.

“This is the draft of a letter that will be finalized later this week with John’s (Massengill) signature on it. It will be on Consolidated letter head,” Lindner said.

“In 2015, a director informed the board of directors in 2002, the employee retirement plan was changed from an insurance annuity type plan to a 401 (k) type of plan. It had for several years, beginning in 2002 and ending in 2015 paid more than the required minimum deposit equal to five percent of employee contributions into Consolidated’s retirement fund account,” Lindner read.

Lindner said CWSC General Manager Sherry Reed had transferred funds into the account at an amount equal to 10 percent of employee contributions. The reason for this, Lindner explained was the original plan, established in 1980, document only required a five percent called for a 10 percent CWSC contribution.

“The general manger did not realize until the director’s inquiry that the 2002 plan document only required a five percent contribution. She informed the board of directors the amount of the payments into the retirement plan were consistent with the amount of payments made prior to 2002 and were reflected in the annual budgets approved by the directors and the monthly finance reports reviewed and approved by the directors,” Lindner said.

Lindner went on to say the only board action on the retirement plan occurred in 1981 when the plan was initiated and the contribution was set at 10 percent.

“So, the manager did not modify the plan defined by the board of directors by maintaining the contributions at 10 percent,” Lindner said.

The attorney explained the board had taken corrective measures once the plan overfunding was uncovered which included:

• Continuing Verification of Reed’s statements by obtaining and reviewing available documents.
• Authorizing a director to file an insurance claim relating to the payment of more than five percent into the retirement plan.
• The directors directed the general manger, effective immediately at that time in 2015, to only contribute five percent to the retirement plan.
• The director’s use of the CWSC legal counsel and the services of an expert in retirement plans viewed the available information and advised the directors on a course of action.
• The directors adopted a policy limiting the contracting authority of the general manager.
• The job description of the general manager was clarified as to what responsibilities fell under the job title.
• The recent evaluation of Reed took into account some of the concerns expressed by shareholders in regard to her job performance.
• The retirement plan was transferred out CWSC control and given to attorney Lynn Markham to manage, effective Jan. 1, 2017.

“The retirement expert advised the directors if there were excess payments, CWSC could attempt to claw back some of the alleged excess payments under the IRS Voluntary Compliance Program,” Lindner said.  “He recommended the CWSC not pursue this option because such actions would be costly, the prospects for success were limited and it could trigger action from the Internal Revenue Service which could result in adverse financial consequences for CWSC and /or its employees.”

Lindner added the CWSC insurance claim related to the overpayments was placed on hold “… waiting on additional information. Based on the information available to the board at that time, the claim was not pursued considering the additional expense incurred and the lack of assurance the insurance company would pay any portion of the claim.”

The attorney added the board would make documentation available pertaining to this matter “… to the extent allowable by the law.”

It was indicated the documents would be available by Friday, Jan. 13 but as of 5:32 p.m. on said date, the documentation was unavailable.

Will Johnson may be reached via e-mail at [email protected].