Pension board contention

City appointees must keep problems once solved from resurfacing

How can the public be confident that the city will not again negotiate an informal arrangement with board members elected by their respective special-interest groups?

Unfortunately, Mayor Sanders has refused to reappoint experienced and proven independent trustees (of whom, admittedly, I claim to be one). He can undermine the pension board's independence by trying to barter with elected members or by exercising extraordinary influence over his new appointees.

Moreover, in further attempting to unduly influence the pension board, COO Jay Goldstone has informed the City Council that a committee will study how to circumvent the "corridor." That could easily lead to deliberate shortages in the city's annual contribution to the retirement fund. That's the road to MP3.

In several ways the system is easily ¼gamed'

According to the City Charter, employees are responsible for paying 50 percent of the "normal retirement allowance." Over many years, this requirement has been diluted to the point that employees now pay 19.6 percent of their benefits' cost. Until this year, the city even paid most of that reduced amount.

In city-speak, this is called a "pick-up." By my calculations, in the next two years the employees' contribution will drop to 12.1 percent of the total amount they collect in benefits.

How could that happen?

First, the benefits included in the "normal retirement allowance" haven't been conclusively determined. The list of benefits it does not include, however, has steadily expanded: disability pension payments, any negotiated benefit increases for past service, any losses resulting from plan experience (such as reduced investment income), early retirement subsidies, DROP and death benefits.

Second, when labor negotiations result in improved benefits, the employees are supposed to pay part of the cost of those future benefits. The retirement board is responsible for updating the employees' contribution rates. Again, probably because of the preponderance of "vested" interests on the board, employees have paid no more for future benefits.

Third, employees don't plug several other small leaks in the pension boat. They were undercharged for years for the famous "purchase service credit," but city taxpayers bear the loss.

Then there is pension "gaming," abusive strategies that some departments use to artificially increase workers' pension benefits without paying more into the system.

For example, retirement pensions are based on an employee's highest 12 months' compensation. An employee near retirement gets a temporary promotion and a higher salary, then returns to his previous assignment. But he gets a higher pension as if he had justifiably earned it.

Flaws in San Diego's system an eye-opener for the IRS

The San Diego City Employees Retirement System is much more complicated than the systems of similar cities, meaning more opportunities to exploit loopholes or inconsistencies in the Municipal Code.

In the private sector, retirement systems are designed to defeat many of these abuses. The amount of the employees' contribution is negotiated and their benefits match the funds available. If the fund experiences a series of losses, future benefits are reduced. The employer's contribution cannot be increased without his prior consent.


