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The city of San Diego’s pension system announced today that it had reached an agreement with the Internal Revenue Service to bring it in compliance with tax code.

The pension system had entered the IRS’ voluntary correction program after it was determined to be in violation of tax code. In the agreement announced today, the pension system admitted to violations in 14 areas and agreed to remedy its ills.

The violations include:

  • The controversial “presidential leave benefit” that allowed selected union presidents to count their years of service with the union toward their pension benefits. The program also allowed contributions by the unions though the unions had never accepted the system as their plan.

And, in 2002, the “incumbent presidential program” allowed selected union presidents to combine both their union and salary to determine their pension benefit.

The agreement states that the presidential leave benefit will be removed from the pension plan and any monies contributed by the union will be returned with interest.

  • More than $33 million in improper payments that stem from the use of the pension system to pay retiree health benefits from 1983 to 1991 and the improper use of the pension system’s staff time in connection with the administration of the benefit.

The system and the IRS agreed that retiree health and the administration of the benefit should be funded by the city, not the pension system.

  • The pension system made payments to 58 employees that were in excess of the IRS’ maximum amount, a violation of IRS code 415. The cost of the overpayments was estimated at $4.2 million.

The agreement says the city has reimbursed the pension plan for the payments in the fiscal years of 2006, 2007 and 2008.

Pension board President Tom Hebrank had this to say in a statement:

This was not a simple process. It’s never easy to admit failures publicly. However, the Board has recognized that to regain the trust of our members and the public, we must face our past, recognize our mistakes and pledge to run this organization in accordance with all applicable laws.

ANDREW DONOHUE

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