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Two weeks ago, I was elected president of the San Diego City Employees’ Retirement System (SDCERS) Board of Administration. Many have asked me why I would take the helm of an organization that has seen so much bad press. The truth is, while you rarely read or hear about it, for the past two years SDCERS has been methodically and responsibly addressing the governance issues that led to the decisions that fueled this negative public and media attention.
In fact, there are a number of accomplishments the new board and management have undertaken to strengthen controls and oversight at SDCERS. While I won’t go into each and every one of them (unless someone asks me to), some of the major changes and accomplishments include:
1. We Are Under New Management
The new Proposition H board includes eight mayoral appointees (seven confirmed by the City Council plus one direct representative) as well as five representatives for the safety members, general members, and retirees. This balance has added objectivity that may have been lacking in the past, while at the same time, allowing the major stakeholders in SDCERS to have a voice at the table. And having seen it in action for almost two years now, I can tell you it works. In addition, we now have a new administrator in David Wescoe, who has done an excellent job in not only changing the culture at SDCERS, but is a true partner of the board in instituting change. We also have a new general counsel, a new compliance officer, an independent audit committee (with a majority of outside members), a new internal auditor position, and more.
2. The Mantle of Reform
While a lot of what we do is not very sexy or covered by the press, we have been hard at work implementing structural changes that were sorely needed. We had our own Kroll-equivalent Navigant investigation (which was produced on time and for a lot less money than Kroll), and have implemented the reforms they recommended. We also look at the ideas that came from the Pension Reform Committee (PRC), and their report is something I refer to frequently for guidance. I won’t bore you with the actuarial details (I’m an accountant by trade and even I find them a little dull), but we have really tightened up the various actuarial assumptions that are used — we now employ the most conservative, actuarially sound, most commonly used assumptions — no financial gimmicks are being used to hide the true picture. And there are numerous other areas of reform; as one example, past boards did not investigate alleged disability fraud cases. You should see our disability committee in action today!
3. SDCERS Is Financially Sound
I know Council President Scott Peters said something along these lines in Café San Diego a week ago, and let’s just say there were some strong feelings on the subject. All rhetoric aside, let me point out a few facts and comments: 1) We recently adopted a 20 year amortization period for the $1 billion pension liability (UAAL), and required additional payments to cover any negative amortization. While this is not quite the Proposition G-envisioned 15-year period, it accomplished what Proposition G and the PRC intended — no more negative amortization or increase in the principal amount of the debt. 2) The funding ratio has increase to 79 percent. And, to his credit, Mayor Jerry Sanders has made funding the pension system a priority and has taken steps to continue improving the system. 3) This fund is not going to run out of money! We have more than sufficient assets to pay our beneficiaries for decades to come. Because of the problems of the past, the city hired its own actuary to double check the figures of SDCERS’ new actuary. The city’s actuary has verified our actuary’s work and has certified to the mayor and City Council the accuracy of the numbers we are reporting.
4. Long-Term Successful Investment Performance
At the risk of making the heads of SDCERS’ investment team grow even larger (just kidding Doug and Dawne), our investment results have been outstanding. We have had returns of 14.08 percent, 12.28 percent, 11.05 percent and 10.09 percent for the past year, three year, five year and 10 year periods, respectively. And did you know that for every dollar that we pay out in current retirement benefits, only 25-30 cents comes from the plan sponsor and member contributions? That means 70-75 cents of each dollar that we pay out in current benefits comes from our investment returns.
So, for the people who ask me why I wanted to take on such a challenge, I say without hesitation that as a member of this board, and now as president, I am doing my part to create workable and responsible solutions to the problems of the past. As the city’s independent actuary pointed out in his presentation to the City Council on April 17, SDCERS is sound. When my fellow board members and I sat down at the dais nearly two years ago, we vowed to right this organization and make decisions based on the law and the best interests of our 17,000+ members. Because we have done that, I am proud to lead this new and much improved organization.