Saturday, April 17, 2010

City Attorney Brings in BIG Guns

Written by: Just Wondering

On April 16, 2010, SDCERS began discussion regarding the City’s NEW attack on Pension Benefits. The so-called “Substantially Equal” theory using Charter Section 143, as a new tact to undermine what you’ve legally negotiated for over the years. The City, at taxpayer expense, hired another outside attorney group, K&L Gates, LLP, comprises over 1,800 lawyers who practice in 36 offices located on three continents as pointed out by our City Attorney in his MEMORADUM of April 2, 2010. Mr. Goldsmith goes on to praise the attorney who rendered the opinion as a lawyer who “…is among the leading experts in the area of practice.” Read about Norman Milks here.

Two items in the opinion really grabbed my attention:

The City’s pension plan is so unique that it may be one of a kind. SDCERS’ actuary, Gene Kalwarski, has stated that in his 30 years of experience he has never come across a pension system with a limitation that the employer contributes “substantially equal” amounts as the employee.” (Memorandum page 4)

And on page 5

The K&L Gates opinion concludes: “The City does not have an obligation to fund all except some small piece of the ultimate benefit, nor to make up for poor investment performance entirely on its own. Instead, the City and its employees, by substantially equal contributions, fund their respective shares of the whole.”

K&L supports their opinion by citing 1954 and 1962 opinions. The 1954 opinion is that of the Charter Section’s author, Shelly J. Higgins, the attorney who drafted the opinion at the time when section 143 had just been approved by the voters.

So the discussion has begun. Putting the discussion into the context of 2010 with the economic collapse of our Nation’s economy, the financial ruin of the City, and the billions in State deficits, I don’t hold out a whole lot of hope for the status quo. Instead, it seems only prudent to budget for a “substantially equal” increase the amount of money you will be required to contribute toward your pension.

On the bright side, SDCERS newly released annual financial report for the fiscal year ending June 2009, shows SDCERS investment returns over the last ten volatile years still ranks “in the top 2% for public pension plans.”


Just Wondering said...

Watch It

The SDCERS meeting has been posted on its website. SDCERS Video Here!

The "Substantially Equal" discussion begins at the two minute mark and lasts about two hours. It's worth your time to view it.

During the public comment portion, Ann Smith, SDMEA Attorney over the past 25 years, makes a strong point on about the City Attorney Office, and its leaders, past and present ones. The point, differing opinions come with every new City Attorney. Case in point, a 2004 the then City Attorney posted an impartial analysis on the ballot for a Charter change. That analysis held the City, not employees, is liable to make up actuarial liabilities.

Smith also raised the argument of past practices, something that may or may not have been purposefully omitted in the analysis by K&L Gates. The historical practices do not paint the City in a good light.

Another argument rests with the fiduciary duty of the Board. They have three main duties, first and overriding or controlling duty is to its members, making sure benefits are paid. The second duty is to minimize contributions made by the plan sponsor, i.e. the City of San Diego.

However this discussion is about substantially equal contributions and does not involve the payment of “benefits” and thus an argument can be made the secondary duty, the one to minimize contributions by the City then becomes the Board’s primary duty.

Dick Vortmann, former SDCERS Board Member and Pension Reform Committee Member argues the game was rigged for 20 years with too many Board Members and System Administrators having vested interests, letting the City take all the risk. He argued against the historical trends. Just because they did wrong in the past shouldn’t mean this Board should continue that practice.

April Boling also former Board Member, Pension Reform Committee Member and whistleblower echoed Vortmann’s comments and emphasized the legislative intent in 1954 and Charter Section 143. Boling goes on to mention “Policy”, the City role versus SDCERS role in policy decisions. Boling believes city employees are responsible for $40 million of the 80 million in investment losses. Charter Section 143 trumps any past practice or rule.

The Board now finds itself between a rock and hard place. It does not set policy. It carries out policy set by the Council, in the form of Ordinances. The Council must follow the City Charter with it sections being voted on, and approved by, the voters.

Case law has over upheld an employee’ vested rights to “benefits”. However the Courts have NOT found vested rights in or with the calculation of the necessary contributions to pension plans. Payments in the form of employee contribution have been in the past and are part of contract negotiations.

In San Diego, Proposition B, approved and implemented by the voters in 2007 stops “any increase” (accept cost of living) in retirement system benefits without approval of the majority of the voters. But it says nothing about altering contribution amounts. Wonder why?

The question is how will the Board vote? The vote will most likely be in May, or because of issues raised during the discussion, a special meeting in June. Will it vote to redirect its Actuary, Cheiron to recalculate the City’s ARC payment?

Or will the Board vote to maintain the status quo? Maybe it will go with some other alternative?

I don't read tea leaves, but my gut tells me they're going to vote with the City on this one, saddling you with 50% of the investment losses.

Maybe, just maybe, a compromise could be reached on a going forward basis, and not to penalize employees for the past.

However the Board decides the result will be new litigation costing millions, draining Enron by Sea’s treasury.

Anonymous said...

Another questions is how to equitably divide the obligation. Do all city employees pay the same amount regardless of the amount of income they earn? What about new employees vs long term employees? Will new hires automatically be saddled with this debt even though they weren't employed at the time the losses were incurred? What about all those years SDCERS was making enormous returns, under this substanitally equal theory shouldn't the city and the employees have shared the wealth? It looks this issue is heading into more litigation.

The Final Straw said...

For me, this is the straw that has broken the camel’s back. I give up. I have had it with the City of San Diego and the way the employees are being treated. We just finalized a contract where we get no pay raises for two years. However, inflation, health care, retirement contributions, etc. are ever increasing. My family cannot survive on my salary. Tomorrow I will actively be seeking employment elsewhere. It has come down to a matter of survival, and the fact that the mayor, city attorney and city management really doesn’t care about its employees. SDPD has already been gutted and is no longer the premiere agency that it once was. Good people but poor management. It’s very sad to see what is happening.

Just Wondering said...


You raise an interesting point and it's exactly what Cheiron's Actuarial mentioned. He could not fathom how the city expected anyone to figure how much each employee's portion would be.

I believe he used words such has hundreds of permutations and constant revaluations. Experience studies would go from every three to five years to monthly.

One Board Member, off camera, commented it would be the Actuarial Full Employment Act.

Saw it Coming Years Ago said...

To Final Straw:

I hear ya; we all hear ya. I hope everyone can do the same and find a career where their employer treats its employees with respect because it hasn't happened here in 25-years. Shame on the citizens of this city; shame on the "mayor" and shame on the Lansdown...

I wish you the best for you and family.

Just Wondering said...

City Bankruptcy: A Fair Review of the Situation

Yesterday I came across this this this piece! in San Diego Business Journal.

It points out the pros and cons on bankruptcy. According to SD City Attorney, Jan Goldsmith,

"Pension Contracts Can’t Be Broken... The law covering municipal bankruptcy differs from those covering individual and businesses bankruptcy, and does not permit breaking existing contracts that cover pension benefits to individuals granted in the past."

Case in point, times two... The Orange County bankruptcy, pension payments were not altered. In the closely watched case of the City of Vallejo, the city approved cuts to certain retiree health benefits but didn’t touch pension payments.

While San Diego does not appear to be interested in bankruptcy it is already attacking your benefits with an aggressive offensive attack on two fronts.

First with its newest theory: "Substantially Equal" a term, according to Gene Kalwarski, SDCERS Actuary from Cheiron, it is completely unique in his 30+ years of performing actuarial services to public pension plans.

Under this theory, which has already garnered substantial support, employees may be required to shoulder a substantially equal portion of SDCERS investment losses as well as other costs.

Actuarial projections show this could mean a contribution of one (1) to five (5) percent MORE of your paycheck. No one really knows how it works, even Cheiron is baffled.

On the other hand no one is talking about years when SDCERS makes or has made MORE in investment returns than the actuarial assumptions. Just Wondering why?

Is the Sky Falling

The investment returns according to the SDCERS Comprehensive Annual Financial Reports or CAFRs for each fiscal year ending June 30th.

2000 = 9.53%
2001 = 14.93%
2002 = -0.45%
2003 = -2.48%
2004 = 20.21%
2005 = 10.80%
2006 = 12.70%
2007 = 16.50%
2008 = -4.66%
2009 =-19.20%

According to the CAFRs over the last ten years SDCERS investment returns are still growing. Even with financial meltdown, worldwide, SDCERS is in the top 2% of public pension funds with its investment returns. In six out of the last ten years, the system OUT PERFORMED, that's right OUT PERFORMED the actuarial assumption of either 8 or 7.75 percent.

So when do start discussing the sharing and the reduction in employee contributions in a "Substantially Equal" way?

Second: For the second year in-a- row, the City, under Mayor Sanders' has proposed freezing cost-of-living increases in retiree health care. He claims it's to help close another budget shortfall. This tactic has little if any affect on you NOW. It certainly under everyone's radar but it is very insidious, in fact so insidious Sanders has reached a new sleazy low.

By the time you realize it will have a huge effect on your future, you won't have a voice OR a seat at the table.

Paid retiree health care is and was a negotiated and promised benefit for all but the newest of City employees. It was promised by then Mayor Pete Wilson and City Manager Ray Blair. It was a quid pro quo for the employees to support the City's desire to exit the federal government's Social Security and Medicare programs. Oh and by the way, it saved the City of San Diego MILLIONS of DOLLARS in matching contributions over the years.

But today, nearly 30 years later, by freezing the "COLA" adjustment for Retiree Health Care, Mayor Sanders is SHIFTING the burden to pay for your retirement health care TO YOU.

If the trend in rising health care costs continues, and there is no indication it won't, the cost of your retiree health care will come close to wiping out your pension during your lifetime. If that isn't something to get your attention I don't know what will.

Anonymous said...

Isn't it typical for lifelong public parasites (cops, firemen, bureaucrats and other crybabies) to howl about making increased contributions to their own exceedingly generous pensions? People that actually contribute to our society and economy by by being entrepreneurs have their collective pants taxed off to fund these bogus payouts to scumbags such as yourself! Do you get bonuses for shooting (in self defense of course) mentally ill people to satisfy an ego-fueled blood thirst? You can piss and moan about the pricks on the seventh floor of your police pigsty and the leeches at city hall but guess what? You are a big part of the problem with San Diego! Get down off your high horse and get real. If you had any good sense you wouldn't depend on a bunch of lying maggots who promise much but deliver little and would have started funding your own retirement twenty five years ago and not look to the greatly overburdened taxpayer to fund your cushy post-employment lifestyle.