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05
May 2010
San Diego sues pension system

The city of San Diego is suing its retirement system in a dispute regarding how much financial responsibility, if any, city workers should bear for a pension deficit topping $2 billion.

If successful, the lawsuit could lead to city workers helping pay for the pension fund's investment losses rather than the current practice of having taxpayers make up for any deficiencies. The potential taxpayer savings have been estimated at $40 million for the fiscal year that begins July 1.

The lawsuit is based on City Attorney Jan Goldsmith's interpretation of the city charter. He says that document, essentially a city constitution, states that the city and its employees shall contribute "substantially equal" amounts to pension obligations each year.

Labor leaders strongly disagree with Goldsmith and say his theory runs contrary to how past city attorneys have interpreted the charter for decades. They fear that Goldsmith's reading could result in lower-level workers being hit with an extra $4,000 bill for their pensions in years when investments slump.

The City Council unanimously approved the lawsuit in closed session last week, and Goldsmith filed it Monday in Superior Court.

He is asking Judge Joan Lewis to force the San Diego City Employees' Retirement System to increase employee contribution rates so workers will pay what he says is their fair share of $80 million. That is the portion of this year's $232 million city pension payment that Goldsmith estimates can be attributed to investment losses.

The lawsuit comes after Goldsmith asked the pension board to adhere to his interpretation of the city charter when setting contribution rates last month. Board members declined his request, saying they read the charter differently.

Goldsmith said the board is, in essence, imposing a burden on taxpayers without proper authority. The city and unions have to agree to any terms other than an even split, he said.

"We can't have the pension board rewriting our charter, and that's essentially what they've been doing," he said. "This isn't about sticking it to anybody; this is about enforcing what the charter says."

Mark Sullivan, the pension board's president, said he was surprised by the lawsuit. He said the pension system's staff will gather today to review the lawsuit before responding.

Frank De Clercq, head of the firefighters union, said he is disappointed that another pension issue is headed for court. He said it would be easier if the council passed an ordinance to define exactly what is meant by "substantially equal" in the charter.

Representatives for three of the city's largest unions - representing police, white-collar and blue-collar workers - did not return calls for comment Tuesday.

The pension fund requires annual contributions from the city and its workers in order to pay current and future retiree benefits. Through past labor deals, the city has typically paid its half as well as a portion of its employees' contributions.

The city's annual payment and the contribution rate for employees are set by the pension board each year, based on an actuarial evaluation that includes the prior year's investment performance.

Councilman Carl DeMaio, an advocate for pension changes, said the potential for increased contributions from workers - and, in turn, less take-home pay - could push unions to the bargaining table and lead to benefit reductions that lessen the burden for taxpayers.

"We've been pursuing pension reform from a number of angles, and I don't believe that you ever are going to find a silver bullet to undo the city's pension mess, but this is one of the arrows in the quiver," he said of the lawsuit.

At an April 16 pension hearing, attorney Ann Smith, who represents the Municipal Employees Association, the city's largest union, said the interpretation made by Goldsmith would have devastating effects on city workers if applied.

"The idea that you would collect in one year from an employee what investment losses might be is a construct that is totally ludicrous and not at all consistent with any of the guiding principles for this system or the guiding principles of law," she said.

The judge is expected to rule on the issue before the city makes its annual pension payment July 1.

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