Blogging Employee Benefits

January 21, 2006

Report Published on San Diego PERS

Filed under: PERS — Fuguerre @ 9:10 am

Summary findings and conclusions contained in a special report prepared for the board of the embattled San Diego City Employees’ Retirement System (SDCERS):

1. Although SDCERS is currently underfunded and the funded ratio has been declining, the system has sufficient assets to pay benefits due to all current retirees.

2. SDCERS’ investment portfolio has historically generated strong returns. This performance prevented the system from being in worse financial condition due to the city’s underfunding of SDCERS, but may have been a factor in the city’s requests for contribution reductions and the Board’s willingness to agree to those reductions.

3. The city has sought alternatives to reduce its contributions to SDCERS since at least as early as 1991.

4. The city contributed less than the actuarial required contribution resulting in the underfunding of SDCERS since at least as early as 1996. The city has not made up for contribution shortfalls from previous years.

5. MP1 and MP2 (two proposals from the City Manager) did not make economic or actuarial sense because the agreements decreased the city’s contributions to SDCERS at the same time the city granted more costly retirement benefits to City employees.

6. The city and SDCERS relied upon surplus undistributed earnings to pay certain ongoing benefits and administrative expenses, which contributed to the underfunding of SDCERS.

7. The SDCERS’ board approved MP1 and MP2 despite concerns raised by board members, the board’s fiduciary counsel and the system’s actuary.

8. Although the board received a recommendation from fiduciary counsel in connection with MP1 that it consider the city’s financial condition and ability to pay, it did not take appropriate steps to evaluate the City’s ability to fund the contribution shortfalls in the future. During consideration of MP2, the board did not evaluate the city’s ability to pay the future contribution increases.

9. Some board members served dual roles as system members who received SDCERS’ benefits, union designees who represented the union members or city employees with responsibilities to city management or city officials. The current board structure has somewhat alleviated this problem since a majority of the board members are not System members.

10. The SDCERS’ Staff assisted the city in developing and implementing alternatives to reduce the city’s contributions to SDCERS.

11. The SDCERS’ fiduciary counsel and actuary could have more clearly explained their concerns to the board and could have been more forthcoming in stating a position with regard to both MP1 and MP2.

12. SDCERS engaged different fiduciary counsel on at least four separate occasions to evaluate each of the city’s contribution reduction requests. Due to the complexity of the system and the city’s requests for decreased funding, continuity in fiduciary counsel may have resulted in better informed advice and better communication to the board.

13. The SDCERS’ Comprehensive Annual Financial Report contained misleading and/or omitted disclosures regarding the funding of the system.

14. The annual actuarial valuations prepared for SDCERS contained misleading statements about the funding objectives and practices.

15. The SDCERS’ board requested that the actuarial valuation exclude the benefits granted to retirees in connection with the Corbett settlement (of a lawsuit filed by retirees).

16. The SDCERS’ tax counsel identified technical violations of IRS regulations governing retirement plans related to presidential leave benefits.

[Investigation for the Board of Administration of the San Diego City Employees’ Retirement System, Navigant Consulting, Inc., pp 5-7, 1/20/06 (pdf – 7.347meg)]

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