County sues pension board for refusing to implement reduced benefits for new employees

San Diego Union-Tribune (CA)

April 20--* San Diego County sued its retirement system this week over its refusal to implement a plan to lower pension benefits for most new employees.

* The county said it has the authority to approve the changes, but pension officials say the plan requires legislative approval.

* The lower tier of retirement benefits was created early this year to reduce future pension liabilities.

San Diego County supervisors are going to court to fight for their plan to reduce retirement benefits for most new workers they will hire after July 1.

The county filed a lawsuit this week against the San Diego County Employees' Retirement Association, the independent retirement system that has refused to implement the lower tier of benefits for future members.

The five-page legal complaint asks a Superior Court judge to force the pension board to approve Tier D, the latest level of retirement benefits approved by the Board of Supervisors early this year.

"Despite the fact that the Legislature authorized counties to use the formula, SDCERA has refused to implement Tier D," the lawsuit states. "SDCERA wrongly contends that the 2006 legislation approving the use of Tier D is somehow inapplicable."

Under Tier D, non-safety employees upon retirement would receive a pension amounting to 1.62 percent of their final annual salary for every year of county employment. That's a decline from Tier C, which pays 2.3 percent per year.

The change also lowered the amounts the county and affected workers would be required to contribute to the retirement fund from 8.27 percent to 6.02 percent.

Members of the county Board of Supervisors, who approved 50 percent pension increases for themselves and others in 2002, created the lower tier to help reduce a multibillion-dollar gap between the $12.5 billion retirement fund balance and its longterm liabilities. Their own pensions would be unaffected.

Pension officials said the county did not follow the law when creating the lower tier. PEPRA, or the Public Employees' Pension Reform Act of 2013, is at the heart of the legal dispute between the county and its retirement system.

In a hand-delivered letter to board Chairwoman Kristin Gaspar last month, pension chief David Wescoe said the retirement system will place new employees into the Tier C schedule until state lawmakers approve the arrangement -- or they are ordered to do so by a judge.

"The Board of Retirement thoroughly discussed and carefully considered the matter and obtained the advice of four experienced fiduciary and legal counsel," Wescoe told Gaspar. "The board concluded that its course of action was mandated by PEPRA's plain language."

County supervisors say the reform act and previously existing law allow them to change the terms of defined-benefit retirement plans as they see fit, so long as the pension board finds "no greater risk and no greater cost" to the portfolio they manage.

The retirement board made just such a finding in December, but resisted enacting Tier D, citing the "plain language" of the reform law, which says the changes "must be approved by the legislature."

The mandate comes at the end of of a 70-word sentence that could be interpreted more than one way.

In a message posted on its website Friday, after being asked about the lawsuit by The San Diego Union-Tribune, the pension system said it could not legally adopt the lower benefits at this time.

"SDCERA has a fiduciary duty to administer the plan according to the law," the statement says. "By requiring the county to satisfy all the requirements of PEPRA prior to implementing Tier D, SDCERA is following its constitutionally mandated duty to the plan and its members and beneficiaries."

Supervisor Dianne Jacob, who also serves as chairwoman of the county pension board and voted in favor of enhanced retirement benefits in 2002, said in a statement Friday that she sounded the alarm about increasing pension liabilities in her state of the county speeches in 2009, 2014 and last year.

"While we've already made significant changes to reduce pension costs, we worked with our labor organizations to secure an even lower pension tier for new employees," said Jacob, who voted in favor of suing the retirement board she chairs. "Clearly there is a disagreement between the county and SDCERA, and it needs to be resolved in order to further protect taxpayers and safeguard the health of the pension system."

San Diego County notes in its court filing that the reduced retirement benefits were approved as part of larger agreements with its unions during collective bargaining sessions last summer.

"Various labor organizations have entered into binding agreements with the county in which they agreed to accept the Tier D formula for new employees in exchange for significant wage and benefit increases," the lawsuit states.

It was not immediately clear whether the enhanced wages and benefits would persist if Tier D is not implemented. The Services Employees International Union Local 221, which represents thousands of county workers, said it was aware of the lawsuit.

"We are monitoring it closely," union President David Garcias said in a statement. "We will wait to see what the resolution is."

If the county does not prevail in court, supervisors are expected to pursue legislative approval for Tier D.

jeff.mcdonald@sduniontribune.com (619) 293-1708 @sdutMcDonald

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