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Tuesday, January 24, 2006 | The former chairwoman of the city’s Pension Reform Committee is now taking on the county’s employee retirement system, arguing that the way the plan bills the county government makes no progress in eliminating its current $1.4 billion deficit.
In a lawsuit filed last week, April Boling asks a court to force the San Diego County Employees Retirement Association to revise its billing schedule with the county Board of Supervisors. Boling contends that the county only paid off part of the interest that accumulated on its pension debt this year, and that SDCERA violated state law by not forcing the county to make a payment that pays off that year’s interest as well as a chunk of its pension deficit.
SDCERA Chairman Dave Myers said he believes the county’s payment schedule provides “a stable path that is part of a very sound financial plan.”
The county pension system’s deficit grew from $1.2 billion in 2004 to nearly $1.4 billion in 2005. Boling says the shortfall grew because of SDCERA changed the way it billed the Board of Supervisors in October 2004.
Defined-benefit pension plans – like those employed by the city and county – send their municipalities annual bills to support the retirement funds. Those bills include the regular expense to sustain the retirement fund and the costs to pay down any deficit that exists. Retirement trustees choose the length of time over which they want deficits to be paid off, called amortization schedules.
The lawsuit claims the county’s pension system chose an illegal schedule that further pushes its debt into the future.
“The law requires them to take steps to reduce that debt as opposed to increasing the debt, which is what they are doing,” said Boling, who led the panel that suggested improvements for the city of San Diego’s pension situation.
The most recent snapshot of the fund’s fiscal health shows the fund has $4 for every $5 it owes. The Board of Supervisors is also indebted to Wall Street for its retirement liabilities. The county owes more than $1.1 billion in pension obligation bonds.
Since 2002, SDCERA has changed its billing schedule several times, essentially extending the deadline for how long the county can pay off its pension debt from five years to 20 years. Each time the association does so, it eases the burden on the county’s budget today to the expense of future budgets.
The county last year paid $316 million into its pension fund. The payment would have likely been higher, and forced cuts to county services, had the retirement association stuck with the previous payment schedule.
Mike Conger, the attorney representing Boling in the suit, said the payments the county makes now equate to “negative amortization.” Because the county will not pay off any of the unfunded liability in the pension system for several years – and will not cover even the full interest that accrues on it – Conger said the county’s real pension bill is being pushed off onto future taxpayers.
“With all the attention being given to retirement systems now, the county is going in the wrong direction on their amortization schedule. It’s pretty unbelievable,” Boling said.
Retirement association CEO Brian White said that the law governing retirement plans for county employees allows a deficit to be paid off in 30 years or less, and that the 20-year schedule at SDCERA complies with the law.
“I’m at somewhat of a loss here to see what the arguments are,” White said. “It is true that in the first three years, there would be negative amortization that would not be sufficient to pay for the principal. But at the end of the 20 years, the debt is completely extinguished.”
The county’s pension bills during the first three years of the 20-year timeline will be spent paying off the accrued interest, White said.
White said the SDCERA board would discuss Boling’s complaint at an upcoming board meeting.
Myers, the SDCERA board president, said the board approved switching the billing schedule on the advice of the retirement system’s actuary. An actuary uses mathematical algorithms and data on such things as life expectancy for retirees to forecast the fiscal health of the pension plan.
The retirement association’s hired actuary, Paul Angelo, was out of town and unavailable for comment.
Please contact Evan McLaughlin directly at