The San Diego City Employees’ Retirement System actuary released a report estimating the city’s $54-million payment in 2003 will not cover half of the $113 million he recommends be injected into the system for the year. The $59 million estimated shortage dwarfs the previous deficit high, which was set in 1998 when the city’s payment was short $8.7 million, according to a Reuters report.
Also stated in the actuary’s report is what is not included in the coming year’s estimated $59 million deficit: benefits granted to city employees last year or the fund’s investment losses. Those new benefits will add approximately $5.6 million to the fund deficit this year, actuary Rick Roeder predicts.
Officials have acknowledged the need to reform the city’s funding schedule, but have blamed the depressed market for most of the plan’s troubles. The $2.5-billion program is estimated to be about $720 million short of being fully funded.
San Diego’s history of low contributions began in 1997 after then-city manager Jack McGrory’s office and retirement trustees agreed to stabilize its annual payments. In the 1990s, a fluctuating market was causing the city’s payments to vary dramatically each year, making it tough for the city manager’s office to budget for the annual payment.
To eliminate this, the retirement board and the city agreed that each year’s payment would be an established percent of employee payroll, regardless of what the actuary recommended be put into the system. This system showed few flaws in the late-1990s market boom as the plan remained at a healthy level due to market gains.
The last few years were a different story, as market declines have revealed large cracks in the system. Now the current shortfall has begun to project problems for the fund in years down the road, as the shortfalls accrue an interest of 8% annually. At that rate, the current $720 million hole in the fund accrues $57 million a year in interest.
However, the city’s 2004 payment is already locked in at less than 12% of payroll, regardless of the drain that increased benefits or market losses could cause on the fund. This year, Roeder recommended the city contribute 21% of its $535 million payroll, while the manager’s agreement bound the city to pay only 10%.