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Friday, December 09, 2005 | Defense attorneys argued Thursday that the District Attorney’s Office wrongly assumed that the six former retirement trustees charged with breaking conflict-of-interest laws profited from the controversial pension deal they approved in 2002.
“It’s speculation,” said Jane Hahn, the attorney defending Mary Vattimo.
The prosecution’s key argument in the case, which just finished its second week of pre-trial hearings, is that former pension board members received boosts to their future retirement checks after allowing the city to forego a lump-sum payment. The retirement trustees’ knowledge that their benefit increases were contingent on the underfunding constitutes a criminal conflict of interest, the district attorney argues.
The 2002 plan, known as Manager’s Proposal 2, has been a point of contention in a city that has been mired in financial and legal problems for the last several years. Because of the city’s pension funding practices, the retirement system faces a shortfall of at least $1.37 billion.
The 2002 benefits were hashed out between the city of San Diego and its employee unions during labor negotiations, but witnesses in the case have testified that the benefit enhancements would only be granted if the retirement board approved Manager’s Proposal 2.
The six defendants in the criminal case are former Assistant Auditor Terri Webster, former Human Resources Director Cathy Lexin, former Treasurer Mary Vattimo, city management analyst Sharon Wilkinson, white-collar union representative John Torres and firefighter union president Ron Saathoff.
Superior Court Judge Frederic Link will determine whether the merits of the district attorney’s case warrant a full jury trial sometime after preliminary hearings conclude in January.
While prosecutor Stephen Robinson’s efforts have been focused on establishing a link between the funding arrangement and the benefit increases, defense attorneys have been trying to decouple the two and argue that the new benefits package did not improve their clients’ pensions.
Two defense attorneys hinted during their cross-examination of a retirement system staff member Thursday that their clients could have benefited more from the benefit structure that was already in place before the agreement.
The formulas approved that year by the City Council included a higher “multiplier” for general city workers. Retirement checks in defined-contribution plans such as San Diego’s are calculated using a formula that multiplies an employees’ highest annual salary, amount of years worked and a set percentage known as the multiplier.
Although the 2002 deal increased the multiplier, the council and unions agreed to cap an employee’s pension at 90 percent of the employee’s salary.
Attorneys for Webster and Vattimo said the two could reap more money in pension pay formulas other than the one created in 2002 because those formulas don’t have caps. Although the 90-percent cap was lifted in cases such as Webster’s, a limit still exists as to what percentage of her salary she can earn in pension checks.
Webster’s attorney, Frank Vecchione, said that his client could make about 108 percent of her highest year’s salary if she retired at 60 years old under a pre-2002 formula. At the same age, her pension payments would likely be capped at nearly 94 percent of her highest year’s salary under the 2002 arrangement, according to a Voice analysis.
Vecchione and Hahn argued that the District Attorney’s Office only asked staff at the pension system to calculate the financial benefit for the defendants assuming they would retire with at age 55 or with 20 years of service, which ever came later. The scenarios were skewing the argument in favor of the prosecution, the defense attorneys said.
Link requested that David Arce, the pension system’s operations manager, compare the pension payouts for the defendants using scenarios different than the one requested by prosecutors.
Saathoff is the only defendant whose pension multiplier was not changed in 2002, although he was presented with a benefit created solely for union presidents that allows him to use his city and union salaries to calculate his retirement pay.
Michael Conger, an attorney who settled a civil case with the city and retirement system based in part on the same argument as the district attorney, said Thursday’s arguments didn’t pan out.
The employees received another retirement option to choose from, which is still considered a financial interest, Conger said.
“Courts have said that [the state law] protects against not just actual corruption, but even the temptation of potential corruption,” said Conger, whose lawsuit on behalf of city retirees has forced the city to make larger payments into the pension system. “If the contract includes a choice that might be beneficial to you, that’s a sufficient financial interest.”
Pension actuary Rick Roeder, who testified Wednesday, is expected to take the witness stand again on Monday.
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