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SAN JOSE — The city’s pension plan overpaid hundreds of retired San Jose cops and firefighters a total of nearly $1 million going back at least two decades — setting up a new battle over how the funds will be repaid.

A similar problem surfaced about a month ago when city officials acknowledged $500,000 in overpayments to a dozen non-public safety retirees. Now, 300 of San Jose’s 2,000 retired cops and firefighters have been notified that they were overpaid.

Under IRS guidelines, retirement trust funds are obligated to recover money paid in error. But that sets up the unpleasant prospect of the city demanding that retired officers and firefighters governed by one of the city’s two retirement systems repay amounts ranging from a few hundred to tens of thousands of dollars.

“My husband and I are lucky — we owe less than $1,000 back,” said Mary True, who spoke to the city’s police and fire retirement board meeting earlier this month after she and her husband received a letter notifying them of the problem. “But there are some people who owe over $30,000.”

The overpayments come less than two months after city voters approved a settlement between San Jose and its employee unions aimed at ending legal battles over an earlier measure to scale back pensions whose costs have risen sharply since 2000.

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When an audit last month found 12 non-public safety employees were overpaid, the city-appointed board overseeing that pension fund voted unanimously to go after San Jose with a lawsuit seeking reimbursement of $882,007 — which included $500,000 in overpayments plus interest.

When the new issue emerged, a separate board that oversees the public safety pension fund discussed the issue with the retired cops and firefighters earlier this month. But Roberto Peña, the director of San Jose Retirement Services, said no decisions were made. The board will reconsider the matter at its meeting next month.

City and retirement officials disagree over who’s responsible for the mix-up — something that could ultimately factor into how the retirement funds are repaid.

The overpayments were first discovered by a city audit in 2009. But Peña says it took his office seven years to sift through a series of “complicated” records to figure out who got overpaid, by how much, and how to fix the problem. He said police and fire retirees were overpaid going as far back as 1998.

City spokesman David Vossbrink acknowledged that mistakes were made going back nearly 20 years and noted some retirees also were underpaid.

“It’s not a new problem but one we take seriously,” Vossbrink said. “There’s a joint responsibility here — it’s on the finance department to provide the correct numbers, the retirement office to do a common-sense calculation, and the retirees to review their paychecks to make sure it’s accurate.”

But Peña said the city gave his retirement office the wrong pay information — which is what was used to calculate the pensions.

“The payroll information we received from the city was not correct,” Peña said. “It’s a challenging situation, but the board is committed to a fair, reasonable and legal resolution to this matter.”

Peña said that the city didn’t properly report pay that’s counted toward pensions. The pensions are calculated as a percentage of an employees final salary multiplied by the years they worked for the city. But not all payments received, such as overtime or extra shifts, count toward pensions.

None of the retired cops and firefighters who flooded a recent public meeting at City Hall said they noticed the extra money on their checks.

“When I received my checks, I just accepted it. I had no way to figure out if it was right or wrong,” said Kathy Ragland. “I didn’t have access to payroll records.”

The affected retired police officers and firefighters began receiving letters last month notifying them of the error.

Retired fire Capt. Dick Santos, who’s a member of the Association of Retired San Jose Police Officers & Firefighters, said he was lucky — he owes only $346. But he sympathizes with other retirees who could potentially owe thousands more.

“It’s minor money in my case, but it’s a lot for some people,” he said. “I’ll pay mine back. I don’t want nothing that I didn’t earn.”

Other frustrated retirees, like Jeff Weber who served in the San Jose Fire Department for 27 years, say their trust in city administrators is diminished.

“You basically hung all these people out to dry,” Weber told the retirement board. “These people are taking the money and you’re not letting them know about this. I’m really not ready to give you guys my money. What guarantee do I have in 10 years you won’t show up at my door and say we were wrong again?”

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