S.D. Files Lawsuit Against Pension System
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May 7, 2010 – The City of San Diego is suing its own retirement system in an effort to make city employees pay a larger share into the pension fund. San Diego Union-Tribune Staff Writer Craig Gustafson joins us to explain the motivation behind the lawsuit, and the impact it could have on the city's pension deficit.
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GLORIA PENNER (Host): The City of San Diego is suing its own retirement system in an effort to make city employees pay a larger share into the pension fund. San Diego Union-Tribune staff writer, Craig Gustafson, joins us to explain the motivation behind the lawsuit and the impact it could have on the city’s pension deficit. So what is the city hoping to gain by suing its own employer retirement system? CRAIG GUSTAFSON (San Diego Union-Tribune): Well the bottom line is they want to reduce the amount of money that the city and taxpayers are putting into the pension system every year. And to do that, they have filed this lawsuit to try to get the contribution rates of employees to be increased and so there's more of a fair balance between how much taxpayers and employers are putting into the system. PENNER: Fair balance. It’s interesting, this came out after City Attorney Jan Goldsmith issued a legal opinion, and it was based on his interpretation of the city charter. He said that the charter says the city and its employees shall contribute substantially equal amounts to the pension fund. So how did that ruling lead to this action? Substantially equal – it sounds pretty clear to me. GUSTAFSON: Well first you have to understand how the city funds its pension system. PENNER: Ok. GUSTAFSON: And how they do that is every year, millions of taxpayer dollars are put into the system as well as millions from the employees. And that money is pooled together in an investment fund and that would pay out the current and future retiree benefits. And what Jan Goldsmith is saying is, according to the city charter that both sides should put in substantially equal portions. But historically, the city has paid a big chunk of what the workers are supposed to pay through labor deals and whatnot. PENNER: So that was actually agreed upon though with the labor deals, wasn’t it? GUSTAFSON: Absolutely. Yes. PENNER: My understanding is that the city put in its half and then also put in part of what the employees contribution should be. GUSTAFSON: Yes. But now what Goldsmith is saying is that because of the investment losses over the past few years that the city shouldn’t bear all the cost of those investment losses. That both sides should split those losses and pay their half. PENNER: What are we talking about in terms of money? GUSTAFSON: Well in his lawsuits he says it’s about $80 million of the payment that’s going to be made on July first. So 40 for the city, 40 for the employees. And that could result in every city employee losing as much as $4,000 out of their paycheck because that will go into the pension fund. PENNER: No matter how much or how little they earn? GUSTAFSON: Well it may be… you know, that’s an average. So I mean it could be, obviously people who make a higher salary would get a larger pension would have to pay more than the $4,000. PENNER: So there is that sort of axe hanging there – a $4,000 average out of the employee’s salary. How might that affect the negotiating power let’s say that the mayor and the council have with the labor unions? GUSTAFSON: Some believe that’s the whole point of this lawsuit: to get the unions back to the table. Put them in an untenable situation where their employees are crying foul because they're getting less take-home pay. And that would force the unions potentially to return to the negotiating table and say let’s work out a new pension system. Let’s do different tiers so different employees can select different options and wouldn’t have to pay so much out of their check. PENNER: So this is now in the court? And do we have any idea – you said something about July 1, that’s when the city would have to make its payments. So can we expect it to be decided before July 1? GUSTAFSON: Potentially. I mean Jan Goldsmith, the City Attorney, has asked the judge to make a decision before July 1 because at that point, once the city makes their $80 million payment there's really nothing the city can do to go back and make city employees contribute more. PENNER: There was some other news having to do with pensions. District Attorney Bonnie Dumanis dismissed conflict of interest charges against six former pension board officials. Why were those charges dismissed? GUSTAFSON: Basically, she was losing in court. The Sstate Supreme Court said against five of the six individuals that she could not proceed with charges. And on the sixth individual said that she could proceed. But in her mind the case had been substantially undermined and that she decided to cut her losses at that point and just drop the case entirely. PENNER: There is another part of the case though that’s in federal court now that’s being appealed. Is that the case now? GUSTAFSON: The federal prosecutors have made the same charges against some of the same individuals and then some additional individuals. And that case is still going on. The federal court has appeals a ruling to dismiss those charges, and so that appeal is in the process. So it’s not over yet. PENNER: Not over yet. Well I thank you very much. We’ll keep watching it with you. Thanks, Craig Gustafson.