The Morning Report
Subscribe now. Get smarter tomorrow.
Thursday, December 01, 2005 | The public has gotten to know former retirement trustee Diann Shipione as the leading opposition against a proposal to underfund the pension plan, but a lesser-known board member that arguably had more at stake financially said Wednesday that the deal just wasn’t appropriate.
Police union representative Tom Rhodes could have been the seventh defendant in the conflict-of-interest case being heard in Superior Court had he voted along with the majority of San Diego City Employees’ Retirement System trustees to approve a plan known as Manager’s Proposal 2.
He was, however, only a witness Wednesday.
“Because I did the right thing … and that was to vote no,” Rhodes said.
Under the arrangement in question, the SDCERS board agreed to relieve the city of a lump-sum payment it was obligated to make in exchange for making effective increases in workers’ future pension checks.
In May, the District Attorney’s Office filed charges against trustees who voted for the plan, essentially arguing they abandoned the fiscal health of the retirement system for their own financial interest as future pensioners.
The six defendants in the case are former Assistant Auditor Terri Webster, former Human Resources Director Cathy Lexin, former Treasurer Mary Vattimo, city management analyst Sharon Wilkinson, Municipal Employees Association Vice President John Torres and City Firefighters Local 145 President Ron Saathoff.
A preliminary hearing began this week to determine if the merits of the case warrant it being heard as a full trial. Motions to dismiss the case altogether were rejected in August.
Rhodes, who along with Shipione voted to oppose Manager’s Proposal 2, testified that he believed the plan was inappropriate upon first receiving the pitch in early May 2002 as part of the Police Officers Association’s negotiating team. Mixing labor negotiations with his fiduciary duty to oversee the financial strength of the retirement fund “just wasn’t kosher,” he said.
“It went against everything I was trained to do as a trustee,” he said.
Some city officials have since defended the proposal, saying that the city’s coffers would have been drained that year if the government made its obligated payment.
Rhodes told the court he had attended several seminars where he learned about public pension systems, although defense attorneys challenged his financial expertise by drawing out that he had no academic training in law, accounting or actuarial science.
During his testimony, which ran longer than Wednesday’s session and will continue Thursday morning, Rhodes explained his misgivings about Manager’s Proposal 2, opined why certain trustees went along with the agreement, and responded to defense attorneys’ cross-examinations about why he wasn’t more vocal about his opposition or why he didn’t recuse himself from discussions if he held an interest in the plan’s outcome.
Whereas Shipione often hesitated before providing nuanced answers during her testimony on Monday and Tuesday, Rhodes appeared to jump at the chance to square the record of events with his accounts.
Rhodes repeatedly said Wednesday that he opposed Manager’s Proposal 2 because the arrangement smacked of collective bargaining, which he believed was beyond the reach of his duty as a trustee.
He said it was implied to the union delegates on the pension board in presentations by the City Manager’s Office that “to get what you asked for in negotiations, this had to happen.” The police union Rhodes represented failed to strike a labor agreement with the city that year, but officers received the benefit during the impasse anyway, he said.
Rhodes said that nobody from SDCERS staff or from the city of San Diego ever denied the notion that the pension benefit increases were tied to the SDCERS’ approval of the underfunding in the six months leading up to the proposal’s final passage. The retirement board ratified Manager’s Proposal 2 on Nov. 15, 2002, three days before the City Council voted to implement the proposal.
It had been explained to him by pension officials that SDCERS administrated benefits and didn’t negotiate them, but Rhodes said that the 2002 proposal “went beyond administrating benefits.”
After defense attorneys objected to prosecutor Stephen Robinson’s question to Rhodes about why he thought some trustees voted for the plan, the witness referred to the boosts each city employee on the board received as a result on Manager’s Proposal 2’s implementation. As for Frederick W. Pierce IV, then-president of the SDCERS, Rhodes noted that he may have had an inclination to go along with the city manager’s proposal because he had a number of construction contracts with the city. Pierce is a developer.
He said he did not understand why other non-appointed trustees voted for the proposal, which repeatedly characterized as being “not kosher.”
Bob Rose, the attorney representing defendant Torres, pressed Rhodes on why he cast any votes at all on the proposal if he knew a conflict-of-interest existed.
“I made the decision to stay,” he said. “I’m a trustee and I’m going to vote on this issue.”
Like Shipione, Rhodes said he was surprised that the system’s fiduciary adviser Bob Blum and outside actuary Rick Roeder seemed to change their opinion over time. Upon early discussions of the proposal, Rhodes said the outside consultants talked about the need for “decoupling” the benefit increases from the funding relief. Both Blum and Roeder blessed the proposal’s final passage in November.
Roeder is expected to testify this week in the preliminary hearing. Judge Frederic Link, who is presiding over the case, estimated that the hearing would take between three and eight weeks.