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City Attorney Jan Goldsmith is wondering if city employees should share some of the investment risk with taxpayers in the employee pension plan.
Last year the city’s pension fund lost more than $800 million from its investments. That loss contributed more than anything else to boost next year’s annual payout to the pension fund to $231.7 million.
The stock market’s swings are leading to a debate that’s bubbling to the surface between the city and its retirement system.
At issue is the interpretation of a City Charter section that requires the city and its employees contribute a “substantially equal” amount of certain pension costs.
Investment losses form part of the pension system’s deficit. The system now is just 66.5 percent funded, the lowest level since the nadir of the pension scandal in 2004.
Last week the city’s retirement system heard a report from its actuary that advised some changes to the amount city employees contribute to the pension system each year.
But the system’s attorneys explicitly ruled out employees contributing to pay down the deficit, which includes investment losses. Both history and previous city legal opinions confirm that point of view, system attorney Elaine Reagan wrote in a presentation.
Reagan also said the retirement system is responsible for interpreting the “substantially equal” section of the charter.
In an interview last week, Goldsmith said he planned to hear the retirement system’s position out, but didn’t seem convinced.
The system was interpreting the charter, Goldsmith said, “very narrowly” and could be shutting off the city’s ability to negotiate higher employee contributions to the pension fund.
“That’s not [the system’s] role,” Goldsmith said. “That’s destructive and they ought not do that.”
The charter, he added, does not prohibit city employees from paying investment losses.
“There is nothing specifically that says investment losses are the risk — or the underlying assumptions — are the risk of the city,” he said.
It’s both difficult to understate and conceptualize how much a charter interpretation Goldsmith is considering would affect how the city and its employees would pay the pension debt. The city’s pension deficit now stands at more than $2.1 billion. At least some of that debt unequivocally is a city responsibility because of the city’s previous pension system underfunding.
But if even a chunk of that $2.1 billion were opened up for employees to contribute it would reframe the pension debate by potentially pushing more of the burden onto city employees.
That is, if it’s legal.
Goldsmith said he planned to take as much as “several months” before determining his opinion on the issue. That opinion might not be public because there could be a lawsuit.
“There’s a potential of litigation,” Goldsmith said. “At some point, we have to consider that and if we consider the litigation route [the opinion] will probably not be made public. At this point, I can’t say. At this point, I want to hear them out.”
— LIAM DILLON