Opinion ID: 1459865
Heading Depth: 1
Heading Rank: 1

Heading: Background .Alleged Underfunding of San Diego's City Pension System

Text: Pursuant to the San Diego City Charter, the San Diego City Council is empowered to set benefits and establish a retirement plan for its employees. That City Charter vests the Board of the Retirement System (Board) with the power to determine eligibility for receipt of retirement benefits under the system, which establishes a defined benefit pension plan. In that role the Board administers the retirement system and performs various functions related to the plan, including the calculation of annual employer and employee contributions, the management and investment of the plan's funds and the distribution of pension benefits to retired City employees. Membership in the Retirement System is compulsory and a condition of employment for City employees. Retirement benefits under the plan are funded by contributions from both the pension system's members and City, which contributions are in turn invested for the benefit of the Retirement System members. Before 1996 City's annual contribution to the Retirement System was determined by a Retirement System actuary, who set the contribution rate based on actuarial calculations. In its collective bargaining agreement City agreed to subsidize or pick up a portion of the employee contribution, in addition to making its employer contribution. Determination of the Retirement System's funded ratio is based upon the current value of the system's assets compared to its future liabilities as calculated by the actuaryany difference between the two constitutes the unfunded accrued actuarial liability. In 1996 the Board and City Council approved an Employer Contribution Rate Stabilization Plan, known as MP1, that changed the way in which City's employer contributions were calculated. According to the terms of MP1, City's annual contribution to the Retirement System was set at an agreed-upon rate that was lower than its actuarially determined contribution rate. In the event the Retirement System's funded ratio fell below a 82.3% trigger percentage, MP1 required City's contribution rate to be increased on July 1 of the year following the date of the actuarial valuation in which the shortfall in funded ratio is calculated . . . to restore a funded ratio back to the 82.3% trigger level. [2] As a result of declining financial conditions and losses to the Retirement System fund in 2001, the system's funded ratio dropped and began to approach the 82.3% trigger percentage. To avoid having to pay the full amount to restore the funded ratio to the trigger level by the following year, City sought relief from its contribution obligations as part of the 2002 labor negotiations between City and Association. It sought to condition any increase in benefits and compensation to Association's members on the Board's approval of a proposal easing City's contribution burden under MP1. That new proposal, aptly named MP2, retained the 82.3% trigger percentage but extended City's fixed contribution rate for another five years, during which time City would increase its payment 1% per year. Despite opposition from Association's representative on the Board, MP2 was approved by the Board on November 15, 2002, and three days later City Council adopted an ordinance specifying that City's contributions were to be made at the agreed-upon rate.