The Morning Report
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Thursday, September 01, 2005 | San Diego County pension officials may face lawsuits directed at them personally if they approve a deal today that one of them says would force retirees to choose between “medicine and housing.”
Attorney Michael Conger, who has built a thriving practice suing pension systems around the state, said he would try to personally “bankrupt” any of the trustees of the San Diego County Employees Retirement Association who vote in favor of a proposal Thursday that would end further funding of an account that pays the medical bills of retired county employees.
“I think it’s time to start playing hardball with people who are secretly doing the county’s bidding rather than doing their duty as trustees of a pension system for retirees,” Conger said.
A meeting on the issue today is expected to draw so many interested observers that county pension officials moved it to the spacious auditorium of the Scottish Rite Center in Mission Valley.
The county’s pension trustees will once again consider a proposal that would cut off funding of both the health care reserve and an account that helps very old retirees maintain their spending power.
If they approve the proposal, pension trustees wouldn’t consider reinstating the funding until the retirement system has paid down some of its $1.2 billion shortfall. The county’s pension fund right now has 81.1 percent of the assets it will need to eventually pay the pensions of all its employees and retirees. The proposal in front of the pension board now would withhold any funding to the health care reserve until the pension system reaches a funding level of 85 percent.
Pension Board Chairman David Myers, a county sheriff’s sergeant, said he doesn’t support the proposal. He said he’s not certain that any action on it will be taken at the meeting today.
Though he agrees with Conger that the proposal is a bad one, Myers said he doesn’t approve of the lawyer’s attempt to “intimidate” the board.
“I would put that kind of a threat on the same level as what [City Attorney] Mike Aguirre is trying to do at the city of San Diego. But we’re in nothing like the kind of situation the city is in,” Myers said.
Former Pension Board Chairman Dan McAllister, who remains a member of the board, said that Conger’s words shouldn’t influence the board.
“We can’t operate in a position of fear, we should vote our conscience on these issues,” McAllister said.
Since 1974, the county of San Diego has paid at least a portion of the medical bills of its retired employees. And for many years, the county has paid that bill out of the so-called “excess earnings” of its pension fund investments. When those investments earn more than 8.25 percent over one year, the “excess” is used to shore up five years worth of reserves in the health care accounts and the STAR COLA accounts. STAR COLA is a program for older retirees that boosts their annual pension in order to help them maintain the spending power they had when they retired potentially decades before.
County officials and staff members of the pension fund say health care, however, is not a “vested” benefit for retirees and they claim the county is not legally required to save money to pay those benefits. The county hopes to use the excess earnings to pay down a $1.2 billion deficit in the pension system, which was the immediate result of the county’s decision in 2002 to improve basic pension benefits.
For several years, the county’s pension fund maintained a surplus in its pension system.
But after the 2002 benefit increase, the fund fell into a deficit of $1.2 billion (read a Voice special report on the county’s pension system). The deficit grew but was stabilized by the county’s decision to issue $1.27 billion in pension obligation bonds.
The deficit has caused the county’s taxpayer contributions to the pension fund to balloon to more than $270 million a year. The county paid an average of $14 million in the decade leading up to 2002.
Yet even with the influx of taxpayer funds, the pension system has yet to begin its climb out of the deficit. The pension staff says that until it does, no “extra” retirement benefits like health care should receive funds.
Conger disagrees with the argument. He said the pension board has been in a position for many years to force the county to do both: pay down the deficit and pay for retiree health care. But it has chosen not to.
“What the county has done is they have created a deficit in their pension fund by giving away benefits they couldn’t afford. They’re not paying that debt off and so they want the trust-fund assets and any excess they generate to pay off the debt,” Conger said.
Myers said the move would force retirees into a tight spot. Cutting their health care benefits someday would force retirees to choose between paying for housing or paying for medicine, he said.
“I have seen information and reviewed additional modeling that suggests there are alternatives other than the proposed policy,” Myers said.
The county’s pension board has been grappling with the issue for more than a year and has spent several months trying to form a position on the issue.
County supervisors claim it’s a matter of prioritizing funds for basic pensions rather than sending money to pay for benefits that are not guaranteed.
“It has to be looked at as far as the total package of benefits we have. Our highest priorities are the basic retirement benefits. The other benefits are arguably not vested but that does not mean we take a walk on it,” said County Supervisor Greg Cox.
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