SDCERS Strikes at Pension Deals

Wednesday, March 29, 2006 | The retirement board has asked a court to invalidate two controversial pension funding deals that allowed the city of San Diego to skirt its annual pension bill for nearly a decade, requesting in a court filing that the city make good on “hundreds of millions” of dollars in back bills.

The move marked the first time the retirement system has acknowledged that previous board members inappropriately allowed the city to avoid paying the amount it actually owed into the pension fund for nearly a decade. It’s also the first effort on the retirement board’s behalf to make up for those actions.

The filing is similar to a lawsuit filed by plaintiffs’ attorney Michael Conger on behalf of a former city employee. The retirement board didn’t list a dollar figure that the city owed to the pension fund, but Conger’s lawsuit is seeking a pension payment of between $174 million and $180 million to make up for underfunding practices that date back to 1996.

And, for the first time, the court filing alleges that current and former City Council members had a conflict of interest in approving the two pension deals. State and federal prosecutors have brought criminal charges against former pension board members on allegations they personally profited from the deal.

The court filing is the most recent episode in a series of legal battles between the city and San Diego City Employees’ Retirement System.

City Attorney Mike Aguirre has filed suit on behalf of the city seeking to void a series of pension benefit enhancements granted as part of pension deals struck between the city and the pension board in 1996 and 2002. The city attorney argues the benefits were part of illegal and corrupt deals in which pension board members allowed the city to skirt its pension bills in exchange for increased benefits. He estimates his lawsuit could wipe $700 million from the pension deficit.

It now appears that both sides are aiming to whittle down the city’s behemoth $1.39 billion pension deficit, but from different angles. Piggybacking the city’s admission that the deals were illegal, the retirement system is now seeking to collect the payments it missed dating back to the first deal, known as Manager’s Proposal 1.

“It looks like it’s another shoe to drop in now what is a chorus of people of agreeing that the city illegally underfunded its obligations,” Conger said.

The retirement system is requesting that the 1996 and 2002 pension deals be repealed, but attorneys for SDCERS and the city disagree about what the consequences of voiding those agreements would be.

The retirement board is asking only that the city true up on its past shortchanging of the pension system. It is not attacking the employee retirement benefits that were attached to the 1996 and 2002 deals, retirement officials said.

Michael Leone, an outside attorney for SDCERS, said the benefits were used as bait for retirement trustees who would earn more in the future as retired city workers, but that they aren’t officially part of the deal. Increasing benefits is only something the City Council can do, he argued.

If Manager’s Proposals 1 and 2 fall in court, so will the city ordinances that pay the benefits that were promised in the deals, Aguirre said.

“Once you find that one vital organ has cancer, the other vital organs have cancer as well,” Aguirre said. “If one goes, they both go.”

Retirement officials downplayed the court filing, saying that SDCERS wouldn’t have a chance to recover the money if it did not respond to a short window of time allowed by the court.

“The reason we filed this is because we had to file it,” Leone said.

Aguirre asked Superior Court Judge Jeffrey Barton earlier this month to make a decision on the pension case by June 23. If the city does not receive a favorable ruling, it can ask for a full jury trial, which would start Oct. 6.

SDCERS argues that the city did not pay the amount required by the City Charter and state constitution in 1996 and 2002. Additionally, the City Council coaxed former retirement boards into approving the funding deals with the promise of fattened pension benefits for several members of the retirement board and the council, the court filing states.

If the former retirement boards are found to have violated state conflict-of-interest law, then the court should make the same judgment against the City Council, SDCERS argues. The retirement board’s filing is the first conflict-of-interest allegation made against the City Council in court.

While the retirement system did not explicitly state which former and current elected officials helped create their own benefits, several sitting and ex-council members received boosts to their future pay when they signed off on benefit increases that are allegedly linked to the 1996 and 2002 deals.

When the 1996 deal was created, the City Council’s membership included three former city employees whose pension benefits would receive a boost as a result of the enhancements doled out that year: Christine Kehoe, Byron Wear and Valerie Stallings, according to an SDCERS spokeswoman. (City payroll records don’t show that Stallings held a non-elected position with the city.)

In 2002, four council members were former employees with the city when Manager’s Proposal 2 was approved: Wear, Jim Madaffer, Ralph Inzunza and Toni Atkins.

Using data obtained from the retirement system, a voiceofsandiego.org analysis shows that the benefit enhancements granted to general members in 2002 raised some council members’ future annual retirement income by as much as thousands of dollars.

– Assuming Atkins serves out the remainder of her second council term, the 2002 increase will boost her annual pension pay by $1,297 to $47,768 per year.

– Assuming Madaffer serves out the remainder of his second council term, the 2002 increase will boost his annual pension pay by $1,295 to $47,248 per year.

– Inzunza retired last summer and will receive $20,895 per year, which is $416 more annually because of the 2002 benefit increase.

The salary data needed for similar calculations for the 1996 council members was not available as of press time.

Please contact Evan McLaughlin directly at

(Clarification: The original version of this story said that council members experienced pension increases in the “thousands of dollars.” However, the highest personal increase was $1,297. We regret the error.)