Friday, February 03, 2006 | Most of the faces at City Hall and the retirement system have changed since the controversial dealings that now play out in courtrooms and consultant reports took place several years ago, but even their replacements are struggling to grasp the two institutions’ relationship with one another.
Dating back to the 1990s, pension trustees repeatedly allowed the city to shortchange the pension system. It is a practice that gave rise to the system’s multibillion deficit and allegations that trustees heeded the city’s concerns and their own pocketbooks rather than the fiscal health of the pension trust they were supposed to independently oversee.
But now the pendulum has fully swung in the opposite direction, as a new batch of pension trustees have invoked their own independence in refusing Mayor Jerry Sanders’ call for them to step down and are evaluating a host of changes that would sever their dependence on the city.
Sanders unsuccessfully expended some of his early political capital in trying to shape the pension board with his own hands as part of his financial reform package. At the same time, he has backed City Attorney Mike Aguirre’s push to become the chief legal counsel for the pension system.
While both men say their control is needed to reign in a runaway organization, those new trustees in charge say they’ve been brought it to fix the pension system and can do it without more meddling from the city.
Emboldened by a report outside consultants presented last month, trustees of the San Diego City Employees’ Retirement System are exploring whether to further cut the cord between them and City Hall.
They tout a legal opinion cited in the recent report by Navigant Consulting as their need to be independent of the city.
“The integrity of our public pension system demands that safeguards be instituted to prevent political ‘packing’ of retirement boards, and encroachment upon the sole and exclusive fiduciary powers or infringement upon the actuarial duties of those boards,” the legal opinion said.
The Navigant report and accompanying legal opinion also suggested severing as many ties to the city as possible in order to protect the fund. The possible conflicts of interest that arise from having employees oversee their pensions may have contributed to the system’s current problems, the report said.
Six former trustees have been charged by the district attorney with criminal conflict-of-interest violations for allegedly voting on an agreement that benefited them personally. At the same time, three of those trustees and the retirement system’s former top two staff members face federal corruption charges on allegations they used their positions in the pension system to financially benefit themselves.
They have all pleaded not guilty.
Voters amended the City Charter in November 2004 to include more mayor-appointed citizens to the retirement board, lessening the sway city employees had in overseeing the system. Seven citizens who are not pensioners have seats on the 13-member board, five are current city workers and one is a retiree.
However, there remain concerns that a number of city workers with personal interests in the pension system sit on the board of trustees. Union representatives say they have a right to oversee the fund that will finance their pensions.
Trustee Mark Sullivan, a vice detective in the police department, said he doesn’t feel any pressure to protect the city’s interests when serving on the board because he distinguishes his work and SDCERS duties.
“What I realize is that when I come to work, I work for the city. When go to the retirement board and sit at that table, I’m not an employee, I’m a trustee,” Sullivan said. “If the other trustees had separated themselves, the things that happened in the past may not have happened.”
Sullivan, who is leading a panel that will suggest reforms for trustees to adopt, said that the board should consider bringing some of its administrative functions under its own purview. These include accounting, payroll and check-writing duties.
Thomas Hebrank, a citizen trustee, said bringing some of the auditing functions in-house might help.
“It’s logical that as an independent entity that we perform our own functions,” he said.
The board’s outside attorneys suggested studying whether a commission should be formed to recruit, vet and select trustees so that elected officials could not resort to choosing board members who had a particular political agenda. The commission would better guarantee that the pension board was qualified and independent.
Members of the board say Sanders’ call for the citizen trustees to step down is an unneeded interference. They also rebuffed the mayor’s opinion that Aguirre should be the legal advisor for SDCERS. The board was appointed to four-year terms so that they wouldn’t be swayed by officials who threatened to remove them, they say, and the city and SDCERS can’t possibly have the same attorney because they are separate entities involved in litigation.
Aguirre said that the new mayor has the right to appoint a new board, as many of the trustees were appointed by former Mayor Dick Murphy. No current trustee sat on the SDCERS board in 2002 when the now-infamous funding arrangement was approved.
“Similar to how he was removed from office, so should the fruit of the poisonous Murphy tree,” Aguirre said.
The focus of criminal charges filed by local and federal prosecutors is a 2002 pension funding arrangement in which retirement trustees allowed the city to avoid making a budget-busting payment to the retirement fund at the same time workers’ pension benefits were being improved. Several of the former retirement board members now standing trial were also city employees and prosecutors allege the trustees were working to fatten their own retirement checks and to please their bosses by allowing the city relief from its bill.
The underfunding and benefit boosts granted in the years leading up to the 2002 deal have mired the city with a pension deficit that is estimated to be about $2 billion. Federal and local prosecutors continue to investigate the city’s pension transactions, even after they have charged several former city and pension officials with corruption for their roles.
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