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Tuesday, Sept. 2, 2008 | Carolyn Y. Smith, outgoing president of the Southeastern Economic Development Corp., will leave office in October with a retirement account that has been boosted significantly by hundreds of thousands of dollars she approved in hidden bonuses and extra compensation for herself.

SEDC payroll documents show that, for years, the redevelopment authority has contributed an additional 12 or 15 percent of each employee’s biweekly pay into a private retirement account, without requiring employees to contribute a penny themselves.

The documents show that the agency calculated the biweekly payments based not on each employee’s base salary, but on the total paycheck each individual received. Those checks were regularly inflated by SEDC’s clandestine system of bonuses and extra compensation, which was revealed by a voiceofsandiego.org investigation last month.

The revelations about SEDC’s retirement plan directly contradict statements made by Smith about the agency’s bonus packages. Smith has argued, in an interview and in a written response to voiceofsandiego.org’s July 8 article, that the agency paid certain lump-sum bonuses, instead of adding to base salaries, in order to avoid increasing the benefits it had to pay each employee.

She and SEDC board Chairman Artie M. “Chip” Owen explained the bonuses to the mayor by saying they were paid to employees at a time when salary levels stagnated.

“The lump sum payment was equivalent to what the next incremental salary increase would have been but did not change the base salary or the associated benefits,” reads the written response, which was signed by Smith and Owen.

The detailed payroll records, which span from September 2007 to June 2008, show that whenever SEDC employees received extra income in bonuses and extra compensation, the agency paid extra dollars into their retirement accounts. The net result was that employees accumulated far more in their retirement accounts than they would have if the payments had been calculated based on the base salaries that had been approved by SEDC’s board and the City Council.

For example, payroll records show that, on May 7, Smith was paid $27,500 for two weeks’ work, most of which was labeled as “incentive pay.” For the same pay period, the records show, SEDC paid $4,125 into Smith’s retirement plan. Had the pension payment been calculated only on Smith’s base salary, she would have received $1,075.

Frank Alessi, chief financial officer of SEDC’s sister agency, the Center City Development Corp., said CCDC calculates payments into the agency’s retirement plan using only employees’ base salaries. Bonuses and extra compensation are not factored into the retirement payments, Alessi said.

Alessi said CCDC pays 16 percent of its employees’ salaries into retirement accounts. The agency also has a separate program which pays an additional 8 percent of employee salaries into another account, Alessi said.

The payroll records released by the Mayor’s Office last month show that Smith and SEDC Finance Director Dante Dayacap received significantly more in retirement contributions than other SEDC employees. Most employees received 12 percent payments but Smith and Dayacap, as senior management, received 15 percent.

But those two employees also received a significant share of the bonuses and extra compensation paid by SEDC, which in turn boosted the amount paid into their retirement accounts. In fiscal year 2007-2008 for example, Dayacap and Smith received 50 percent of the total dollars the agency paid out in bonuses and extra compensation.

The payroll records show that, in 2007, SEDC paid $30,809 into Smith’s pension plan and $23,724.51 into Dayacap’s. The agency paid $14,246.21 into the pension plan of its executive assistant, Kimberly King, but most other employees received less than $10,000.

Records released in the wake of the bonus scandal have shown that Dayacap and Smith received bonuses and extra compensation totaling tens of thousands of dollars a year. For example, in fiscal year 2007-2008, Dayacap received $67,438 in such payments in addition his base salary of $105,000. Smith received $89,392 on top of her salary of $172,000.

Last month, Smith was fired by SEDC’s board of directors in the wake of the bonus revelations. She has also been sued by City Attorney Mike Aguirre, who is seeking to recoup at least $260,000 in payments authorized by Smith.

David Powell, an expert on nonprofit retirement accounts, which are known as 403(b) plans and are similar to corporate 401(k) accounts, said a nonprofit can essentially design its plan however it wishes, as long as employees do not pay more than federally mandated maximum amounts into their pensions and employer contributions do not discriminate amongst employees.

But Powell said SEDC’s pension plan appears unusual and extremely generous because, unlike most 403(b) plans, it does not require employees to pay anything into the plan in order to receive matching funds. Powell said the plan may violate Internal Revenue Service rules on nonprofit compensation, which mandate that nonprofits pay their employees “reasonable rates.”

“You can’t just hand out money to people,” Powell said.

Nonprofit experts have also warned that SEDC’s bonus program could run it afoul of the IRS as well because bonuses are supposed to be tied directly to performance and the process is supposed to be overseen by the board.

Mayoral spokesman Darren Pudgil said the mayor will be asking SEDC’s new board of directors to investigate the retirement plan payments in addition to the employee bonuses. The agency will likely receive have four new board members approved at the first meeting of the City Council on Sept. 2.

“On the surface of it, this certainly appears inappropriate,” Pudgil said.

City Attorney Mike Aguirre said he would add the agency’s retirement plan to the list of payments made by Smith that he is currently trying to claim back for San Diego’s taxpayers.

“This is another area that’s going to have to be scrutinized to see if in fact there are financial abuses, and if this needs to be added to the litigation to set it aside,” Aguirre said.

SEDC Spokesman Alexis Dixon refused to answer questions on the agency’s retirement plan. He deferred questions to SEDC Corporate Counsel Regina Petty, who also did not respond to calls.

Please contact Will Carless directly at will.carless@voiceofsandiego.org with your thoughts, ideas, personal stories or tips. Or set the tone of the debate with a letter to the editor.

Dagny Salas

Dagny Salas was web editor at Voice of San Diego from 2010 to 2013. She was an investigative fellow at VOSD from 2009 to 2010.

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