Supervisors Approve Pension Compromise 

By Gig Conaughton, North County Times

June 19, 2007

Six months after telling their independent pension board to slash increasingly costly retiree health benefits, San Diego County supervisors approved a compromise that would continue health benefits to all retirees -- and still save county taxpayers cash.

Supervisors said the compromise, hatched last month by the San Diego County Employees Retirement Association, would save county taxpayers more than $1.2 billion over 20 years -- and possibly defuse what supervisors called "a ticking time bomb" that threatened the $8 billion pension fund.

Supervisors and the retirement association have been at odds since December 2006 when supervisors issued an ultimatum to the association: "cut some retirees' health benefits by June 30, or we'll cut them all," by eliminating a tax-exempt account used to dole out the up-to-$400-per-month benefits.

But Tuesday, with time running down on the county's deadline, supervisors instead voted unanimously to approve the retirement association's compromise.

Supervisors unanimously said the key to the compromise was the retirement association's promise to not use "excess investment earnings" to pay for the long-granted but never-promised health benefits until the county's pension debt, which is now around 15 percent, shrinks to less than 10 percent.

Until now, the retirement association has been able to use any or all pension-investment returns that exceeded their 8.25 investment-return target -- known as "excess earnings" -- to pay for the health benefits instead of paying off the county's $1.23 billion debt on the $8 billion pension fund. That does not include another $1.1 billion in county pension obligation debt -- bonded debt the county has used to pump more money into the pension fund and shrink its reportable debt.

"We think this is a good plan," said Supervisor Pam Slater-Price, who co-authored the county's December ultimatum with Supervisor Dianne Jacob. "Good for the retirees, and good for the current employees and good for the taxpayers of San Diego County."

County Chief Financial Officer Don Steuer said the retirement association's plan would allow the county to erase that $1.23 billion pension fund debt "as early as 2013."

Steuer said the compromise plan would cut what the county, and taxpayers, had to pay into the pension fund by $44 million a year, which he said would ultimately save $1.28 billion -- with interest added -- over 20 years.

In addition, the county's top attorney, John Sansone, said the county would not be legally obligated to pay for any health benefits in the event of an economic crash because the proposal included language that said county supervisors could change the plan at any point in the future.

Another key to the compromise, however, was the fact that even though it proposes to continue paying health benefits to roughly 17,000 current and future retirees that the county wanted to cut off -- the county won't have any accounting ties to the continued payments.

When the county issued its December ultimatum, it said it was doing so in part because of new accounting rules.

Those rules, they said, would require the county to report the health benefits as part of its pension fund debt for the first time.

It would, they said, increase the pension-fund debt from $1.23 billion to about $1.8 billion. That, officials said, could hurt the county and taxpayers by hurting the county's bond-rating and make taxpayers pay more when the county builds projects.

The best way to change that, county officials said, was to eliminate the health benefits for all but the oldest, poorest pensioners who retired before 2002 -- when supervisors boosted pension benefits by 35 percent to 50 percent.

But the retirement association's compromise removes the county's accounting liability for the 17,000 beneficiaries by promising that the association will pay their benefits out of their own pocket -- and not through the tax-exempt account run by the county.

Still, that idea did not thrill all the supervisors Tuesday.

Jacob, who is also a member of the retirement association's board of trustees, and who has endured attacks from retirees and fellow trustees since the county issued its ultimatum, said the association should still cut health benefits to the 17,000 pensioners.

She said those beneficiaries received the 2002 pension-benefit boost and should be able to pay their own health benefits.

"I, for one, am not pleased with the retirement board's refusal to end the never-promised, discretionary (health) subsidies to the same retirees who received the generous enhancements in 2002," she said.

Jacob drew smattered boos from the elderly retirees who attended Tuesday's meeting when she asked that supervisors formally send a letter to the retirement association asking it to cut the health benefits.

Jacob, however, withdrew that request when other supervisors said they could not support it.