An interesting, but little noticed item appeared on the City Council docket four months ago on April 16, 2007. It was supposed to be an update from the Cheiron (pronounced,”KY-ron”) actuary of the San Diego City Employees’ Retirement System (SDCERS) regarding the 2006 “actuarial valuation”. The actuary is the person who does the “valuation” of all the retirement system’s assets and liabilities and reports those findings in public. It’s important information, especially here in San Diego.

But, he didn’t show up, which was too bad. We were obviously all interested in what he had to say. SDCERS outside pension litigation attorney, Reg Vitek, showed up in Cheiron’s place and said that he had advised the actuary not to appear. Instead, SDCERS Retirement Administrator David Wescoe, provided some written information. 

Included in those materials was a copy of a power point presentation from the missing Cheiron. In that Power Point, Page 6 was titled, “Why the Unfunded Actuarial Liability Decreased.” One that seemed to stand out for its special wording was No. 6 that simply stated: “Proper treatment of IRS benefit limitations … $22.8 million.” 

I asked the city’s CFO/COO etc., Jay Goldstone, at the meeting what happened to the $22.8 million SDCERS liability? Did it really go away? Were we $22.8 million dollars better off?

The answer was actually, no. I learned that SDCERS had reduced their liability by transferring that same amount to the city. So now it’s our liability. 

Why do that?

Well, it seems that Internal Revenue Code (IRC) section 415(b) has a cap on the highest amount of money that can be legally paid out of a plan like ours when a person retires. That amount is about $175,000 per year (it goes up periodically), and as it turns out, we have employee/retirees whose retirement entitlements exceed that amount. So, we can’t legally be paying those sums out of our current retirement plan.

But it’s not just the city of San Diego who has such a plan; there are similar provisions in the port and airport authority plans as well.

The fix SDCERS came up with was to establish an excess benefit arrangement. 

Known as the Preservation of Benefits Plan, this arrangement is intended to allow city retirees who are entitled to receive amounts over the maximum allowed by the IRS to receive those amounts from a second separate fund. I say intended because SDCERS has not received approval for this approach from the IRS and has applied for a Private Letter Ruling on this issue.

As of July 18, 2007, the IRS had yet to make a determination, and even though SDCERS hasn’t “billed the City for any amounts in connection with the IRS filings”, the city’s 2007/2008 budget includes $500,000 for an annual payment of the Preservation of Benefits Plan.

On April 20, 2007, I issued a memorandum to Jay Goldstone asking him a variety of questions about this. 

Despite numerous requests, and four months of waiting, I haven’t received any response to my memo. The public has a right to know, so I’ll ask again here in the Café and see what happens.


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