Pension Pros Warn That Hocus-Pocus Could Be Used to Lower Annual Payment to System

Mayor Jerry Sanders has named three new members of the San Diego City Employees' Retirement System. Three veterans are stepping down. Accountant April Boling warned a meeting of the City of San Diego Retired Employees' Association April 14 that, "As the pension obligation grows. and there is tremendous stress on the City's budget, there will be tremendous pressure to change the assumptions" so the required payments, called the annual required contribution, or ARC, could be lowered. Because the City plundered the pension fund beginning in 1996, the required payments will be backbreaking in coming years. One way the SDCERS board could reduce those annual payments is by removing or substantially modifying what is called the "corridor," which in effect is a method to make sure that so-called "smoothing" does not get out of hand. Because the returns on the pension portfolio might be great one year and horrible the next, pension plans use smoothing techniques, or averaging out the returns over a period of, say, four years. But the corridor keeps the smoothing within honest bounds. "If there is an event in the market that is significant and substantial and should be recognized, the ARC should reflect it," says Bill Sheffler, one of the board members who was removed without his concurrence. If the board monkeys with the corridor, the ARC could be too low -- thereby producing a re-run of what has brought the City to the brink. Sheffler guesses that, "Some people who want to curry favor with the mayor are doing some backpedaling." He feels that one reason he was not reappointed was that he made it clear that SDCERS must insist that smoothing be honest. Boling, who narrowly lost for the 7th district council seat, says, "I have an uncomfortable feeling about this. It would be very easy to do what has been done in the past -- attempt to solve problems by underfunding the pension system. I am hoping that by surfacing the issue that we can preclude this from happening." Thomas Hebrank, most recent SDCERS president, says he is voluntarily stepping down. He doesn't think such hanky-panky is in the cards. Board member Peter Preovolos, a former president who is also leaving, could not be reached for comment.


I don't htink the City retiree's (through their Board of Directors) will allow any more under funding of the pension system fund.

They have had a taste of the problems that car arise and at this point I highly doubt any of them will ever again allow such under funding as has happened in the past.

Without approval of the Board the underfunding cannot happen, and no one on the Board this time around is going to get caught in such a fiscal nightmare.

Response to post #1: But juggling the corridor could be done without many people figuring it out. It may not involve a huge cut in the ARC, but just enough to make the budget look better. Already, Sanders's budget is based on some hyper-optimistic economic assumptions. The devils are in the details. Best, Don Bauder

the retirees have been the most vigilant watchdogs. But even their board members need support.

As a former board member, it takes guts to stand alone, and lose over and over again.

It's not uncommon to have a lone dissenter cowed into silence or agreement, contrary to their best instincts. Look at how Dick Vortmann was co-opted to vote for MP2, after relentless pounding by the Grissom/Saathoff majority on the old board.

And Don is correct, there are lots of moving parts in which to conceal a strategy in public pension funding. It makes the old shell game look like kids play.

On that subject, it is going to take some time to bring these new appointees up to speed during which time they may be tempted to "go along" rather than say "stop this doesn't make sense to me". Then it becomes easy to create the impression that those new members are just not very bright; cowing them into silence.

Response to post #3: Yes, Vortmann saw the folly -- and danger -- of MP2, but was bullied into silence. There are other similar examples. And you are quite right. This is subtle, complex stuff. SDCERS can use accounting ledger-demain and fool almost all of the public. Best, Don Bauder

So I have to ask the questions:

  1. How are these types of shananagans prevented?

  2. How do lay people recognized these acts to the shed light of day onto them AND those who would perpetrate them?

  3. Would Board members as well as SDCERS management(Wescoe et.al.)have a fiduciary duty to SDCERS members to prevent future underfunding?

  4. SDCERS must follow ordinances enacted by Council and signed by the Mayor. Could an ordinance be crafted in such a way to insulate the SDCERS Board and Management from action?

Finally, Jerry isn't this smart. While at the PD, important decisions were made by committee after being vetted to the point where nausea was setting in. Where is this advice coming from these days? Where is the promised transparency?

Responses to post #5: 1. It's almost impossible to prevent complex accounting fraud. The press, retirees, and City employees should keep pressure on the SDCERS board and on the council to make sure that every year's ARC is valid. 2. The law, accounting, medicine, most scientific disciplines use their own argot to make sure the public doesn't understand their professions. It's the job of the press to crack these arcane codes. But the press is shrinking. 3. Of course, board members and SDCERS staff have a fiduciary duty to participants, and no responsibility to politicians who appoint them. 4. If there is any attempt to legislate insulation of the SDCERS board from its responsibilities, the public should rise up. But would it? Best, Don Bauder

Response to post #6: Sanders's deficiencies are well known. He is a good self-promoter but not a good administrator. The promised transparency was just that -- a political promise. Best, Don Bauder

Um, remember that employee participation has been discouraged as of late with the remake of the board. So I guess we'll sue if we have to. The city hasn't been particularly good at defending itself from employee lawsuits, with the notable exception of the cops.

Let us not forget the brilliant "Pension Protection Act." You know, the Act named so we would all think that the Bush administration protecting our pensions. In fact, all it did was protect the companies offering pensions by allowing them to fund plans at lower levels.

Note that effective 1-1-09, lumps sums started to be reduced every year as this Pension Protection Act kicks in...to protect big companies.

Jerry should recruit Norm Stamper to provide some intellectual capital to the mayor's staff and help him run the city. Norm could help San Diego the way he helped Seattle.

Don, the Bush-GOP era proved beyond all doubt that the GOP in San Diego, Sacramento and Washington have betrayed America to satisfy their paramount cultural values of greed and corruption to maximize the wealth of the top 1% regardless of destructive consequences to all other Americans.

Eight years of continuous criminal actions by GOP leaders have proven they don’t give a damn about American labor, the middle class, American families, and the American military who risk everything to protect America from international terrorism.

The fact is that GOP terrorists have been trashing San Diego, California and America and it’s time for all Americans to fight back against never-ending GOP acts of treason against the U.S. Constitution, the Wealth of All Americans, American Quality of Life and the American Military.

Response to post #9: If SDCERS jiggles the numbers to reduce the ARC payment, then employees should consider a lawsuit. The board has a fiduciary duty to the participants -- period. Best, Don Bauder

Response to post #10: Yes, that pension protection act basically protected corporations, not plan participants. What did you expect from the Bush administration? And a compliant Congress? Best, Don Bauder

Response to post #11: Stamper is now writing for Huffington Post, it appears. Best, Don Bauder

Response to post #12: Your thesis is basically correct but I think a lot of Democrats are guilty, too. Best, Don Bauder

BTW the intro line to the story says: "Mayor Jerry Sanders has named three new members of the San Diego City Employees' Retirement System." Well... Who are these new board members? What are their backgrounds? What qualifications do they hold to direct and manage billions of dollars?

Well, it could be WORSE!!!

New jersey's pension fund is only at a 31% funded level-which has to be the worst funded pension in America.

We are at between 50%-60% funded and that level should dictate a BK filing IMHO, I cannot imagine a 31% level;

The real number on New Jersey pensions Posted by John Bury April 16, 2009 11:07AM

You might get a lot of numbers tossed at you regarding deficits of $34.4 billion and a funded ratio of 72.6%. If that were only case. Based on these actuarial reports I put the real deficit now at $133 billion and the real current funded ratio at 31.1%.


Response to post #17: The three are Edward Kitrosser, audit partner and San Diego office managing partner for Moss Adams; Herb Morgan, CEO of Efficient Market Advisors, an investment advisory firm which Morgan founded in 2004, and Richard Tartre, retired senior vice president of Met Life and one-time senior vice president of the former E.F. Hutton. The only one I know is Tartre, whom I consider quite competent. Morgan spent his career in the securities business; Tartre was in both securities and insurance. Kitrosser has spent his career in accounting. Best, Don Bauder

Response to post #18: Wow! I agree that 31% is egregiously low. I thought Illinois was in the worst shape. It looks like New Jersey gets the honors. Best, Don Bauder

Response to post #16:

Don, the highest priority is to vote out all the republicans now, or I shall be forced to join the NRA for one more We The People fight back against aristocracy to protect America again.

This time America needs protection from attacks by the GOP's Mussolini culture like “Il Duce” Limbaugh, “Caligula” Cheney and our own local “Nero” Sanders.

Then we'll straighten out the Democrats.

Response to post #21: You sure you want to fight Limbaugh? He's pretty big. Best, Don Bauder

Response to post #22:

No problem Don, Limbaugh is a certified member of the Order of the White Feather, along with Bush, Cheney and Rumsfeld who were all role models for the "Hell No, We Won't Go" Viet Nam Anti-War momement.

But that didn't stop them from sending American Heroes and Patriots to the Cheney-Halliburton-Iraq War that had no leadership and no planning while refusing to equip our military with equipment and training to protect themselves.

That's one more reason to eradicate the GOP that betrayed the grave warnings by President Eisenhower in his Farewell Address about the military-industrial complex.

Response to post #23: Yes, we should have listened to Ike's warning about the military-industrial complex. In the same speech, he expressed concern that universities were being controlled by government research money. That was prescient, too. Now universities are controlled not only by government money, but also by private sector bucks. Indeed, the private sector -- particularly biotechs in San Diego -- are using money to influence the curriculum. Best, Don Bauder

Yes, we should have listened to Ike's warning about the military-industrial complex.

Now we have a much bigger problem, the Financial-Banking industrial complex.

Response to post #25: The financial-banking complex can blast us to smithereens, just as the military-industrial complex can. Best, Don Bauder

In what appeared to be an end-around by the Mayor's office to delay the election of a new SDCERS Board President, the SDCERS Board defeated a motion by Mayor Sander's appointee, Susan Gonick, in an 11-2 vote to support going forward with the election.

Gonick opined the Mayor's incoming slate of new Board members were being denied the "right" to either run for, or vote on, the Board Presidency. After discussion, the current Board members overwhelmingly agreed the delay served no other purpose other than to obstruct the Board's ability to move forward with SDCERS business in an effective manner. Emphasis was made regarding the Board's inability to expedite the vetting, scheduling and approval processes of the City.

With two candidates nominated, and a 7-6 vote, Mark Sullivan, SDCERS Boards Vice President was elected to a new two year term as Board President. Sullivan, the Police Department's representative on the Board, has served for the past four years. As new the new Board President, Sullivan nominated Ray Ellis, the other Presidential candidate, for Board Vice Presidency. The nomination succeeded on a unanimous vote.

Of note, new SDCERS Board President, Mark Sullivan, also serves as a Director and Treasurer the San Diego Police Officer Association. This may present challenges where Mr. Sullivan may have to recuse himself where matters conflict between SDCERS and SDPOA.

Scott Lewis of VOSD did a nice piece on the Mayor's NEW SDCERS board members... even caught San Diego CEO Jay Goldstone in lie, that was scrubbed by the Mayor's spinmiesters later that day...

To paraphrase, all three of the DRAFTEE, knew little or NOTHING of the details of the infamous MP-1 and MP-2. But what is MORE interesting to me, is Board Member and Mayoral Appointee, Susan Gonick, actually made a motion at the April Board Meeting that these three fellows rights were being abused... HUH? How does someone who is not even on the board have their rights abused? She went on to say... they may have wanted to run for Board President! WHAT THE HECK??? These three have little or NO knowledge of the SDCERS problems and history surrounding them. They admitted their ignorance during the council confirmation hearing. Nevertheless, a sitting Board member who is also an attorney, suggests one of them could or at least SHOULD have the right to run for the Board Presidency.

If that isn't the Mayor attempting to INFLUENCE the decisions of what is suppose to be an INDEPENDENT entity then what was that motion about? Thank heavens the motion failed and the sitting Board VP was elected President. Now it's up to the "NEW" media to keep an eye out for other disingenuous acts by our Mayor and his staff in a grab for power.

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