So I can connect the ground back into the daisy chain of ground that goes back into the ipac no problem?
Electrons have a negative charge. They move from ground to positive.
Picture drinking through a straw
-- Ground is lilke a cup full of liquid and the straw is the circuit
-- When you suck on the straw, (apply a positive voltage) the liquid (electrons) flow through the straw (circuit)
-- If the straw is cut in the middle, you get an open circuit
The ground of the LED power supply will provide the few mA of electrons that the encoder draws -- no need to directly tie the LED supply ground and IPAC ground together.
If you don't believe me, short an encoder input to your PC power supply case and the encoder will output the corresponding keystroke.

If something goes wrong with the LED supply ground wire and the LED daisy chain ground is directly tied to the IPac ground, the IPac ground will have to supply the current for both the LEDs and the encoder which could damage the encoder, depending on how much current the LEDs draw.
Instead of a big straw (LED power supply ground) and a little straw (IPac ground), the little straw would have to handle the full amount of liquid.
For the switches that you want to turn off when you press the buttons, wire them like the diagram above and use the ground from the LED power supply.
Also, I just tested my sample with a multimeter and fond the bulb to be drawing 13.5v and 1.83A. The power supply is rated at 500mA, should I be concerned?
EDIT: I feel like an idiot, i was testing the amperage wrong. it's 1mA
1mA doesn't sound right
at all -- should be closer to 20mA for 12v LEDs with a 12v supply.

Did you put your meter in series or parallel with the circuit to be measured?
Your amperage test setup must be in series (like below) so all the current has to flow through the meter. (all liquid through one measuring straw)
+V----red lead--multimeter--black lead----LED----ground
or+V----LED----red lead--multimeter--black lead----ground
Any path around the meter like putting it in parallel (below) will give a false amperage reading because some current will flow through the meter and some will flow through the LED. (drinking through two straws, but only one measures how much liquid is going through it)
red lead--multimeter--black lead
| |
+V-----------------LED-------------------ground
Scott