San Diego Committee Green Lights Pension Review Commission

August 7, 2003 (PLANSPONSOR.com) - The San Diego City Council Rules committee has unanimously approved plans for a nine-member pension reform commission to study the San Diego City Employees Retirement System.

With the committee’s nod, the approval process moves to the full City Council in September.    If the city council follows suit, then the commission could begin work by October and report back with recommendations by April, according to a San Diego Union-Tribune report.

The latest action follows an initial approval of the process by the committee two weeks ago asking the city manager and attorney to draft an ordinance creating such a panel and return to the committee.   At the time, Mayor Dick Murphy said the commission should be in charge of performing independent financial and management/performance audits in addition to studying other issues.  Those issues range from the structure of the current retirement system board to whether new employee contribution levels only would be defined, instead of the current system of guaranteeing retirement benefits.

Additionally, Murphy said if approved, he would appoint the nine commission members, with confirmation by the City Council. Suggested as the makeup of this committee were:

  • five pension experts who are not city employees or retirees
  • one non-city employee or retiree taxpayer advocate
  • one non-city employee or retiree member of the Retirement Board
  • one retiree who is not a member of the Retirement Board
  • one city employee who is not a member of the Retirement Board.

Review Time

The need for a review came about earlier this year when the city’s $2.6-billion pension plan was found to have a deficit of $720 million and unfunded retiree health care obligations of $1.1 billion; 85% of which Murphy attributes to poor stock market conditions.

Like many public and private retirement systems nationwide, San Diego’s city retirement system has been damaged in recent years by investment losses and years of underfunding by the city, a practice dating to the mid-1990s and used by mayors and city councils to balance tight city budgets. Additionally, the fund has been squeezed by demographic forces – retirees are living longer – and by political forces, including the granting in recent years by mayors and councils of generous retirement benefits to city workers, particularly public-safety employees.

Despite this,   it was not until last year that the City Council committed to a payment schedule intended to bring the system to full funding within several years. However, with such an aggressive schedule also comes fiscal pain, such as putting the squeeze on city services as the retirement system’s liabilities eat up an increasingly larger share of the city’s budget.

It is the potential for a tightening of the fiscal screws that now has the mayor casting a suspicious gaze out five years, to 2008, a year the city’s annual payment to the pension system is projected to soar to $240 million or more, up from the $112 million bill this year.   Asked how he plans to pay the massive bill in the summer of 2008, Murphy said, “I would hope that this pension reform commission will be able to avoid that train wreck.”

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