Today, Mayor Jerry Sanders announced that San Diego's pension deficit rose to $2 billion and City Councilmember Carl DeMaio simultaneously released a report detailing million dollar pension payouts and six-figure retirements. The amounts of the top 100 retirement allowance payouts were detailed in DeMaio's report, but names were not included.

"I do not want the focus to be on any one individual," DeMaio said at a press conference today, where he emphasized that he wanted to reform the pension system, not bully recipients. "These abuses gouge taxpayers and puts city workers' retirements at risk." 

DeMaio called on the retirement board that oversees the city's pension to begin making adjustments to interest rates on accounts at their Feb. 20 meeting.  In addition to retirement allowances, DeMaio's report found that lump-sum payments were made under the Deferred Retirement Option Plan (DROP), which allows employees with five or fewer years left until retirement to keep working and collect a monthly pension payment based on their salary and years of service at the time they enter the program. It has a 7.75 percent interest rate, which was only recently reduced from 8 percent by the retirement fund board. The program was ended for all new city employees in 2005, but DeMaio's report advocates lowering the guaranteed interest rate to 4 percent, or about the equivalent of what an individual could receive on a low-risk CD.

"Had the 4 percent interest rate been implemented sooner, we would have no million-dollar circle in the pension system," DeMaio said. A total of 1,774 individuals have more than $333 million in DROP accounts. Regardless of market downturns, those individuals are guaranteed a 7.75 percent interest rate--something that DeMaio said has contributed to the 386 percent increase in San Diego's pension fund liability since 2000.

DeMaio was joined by April Boling, the former Chair of the Pension Reform Committee, who expressed her concern that high payments now could jeopardize the retirement security of current rank-and-file workers in the future.

"This is an area that can be reformed," Boling said. "The rate of return should be commensurate with risk. You wouldn't get 7.75 percent back on a CD."

When asked if the percentage rate on DROP accounts should be reduced in conjunction with tough economic conditions, Joan Raymond--the president of AFSCME Local 127, a union which represents some of the city's blue-collar workers--said that's something the retirement board will have to decide based on its fiduciary duties.

"You want to be sure, when somebody retires, that they're able to be a part of the middle class and contributing to the economy," Raymond said.  "If people can retire with a reasonable sum, they're going to be stimulating the economy--which is what we need right now."

She was also quick to point out that the workers AFSCME represents aren't the ones with seven-figure payouts from their DROP accounts.

"This is the problem, somebody circles a figure that is high, and then the citizens think all the city employees are getting that," she added. According to Raymond, the advantage of DROP accounts is that, when an employee signs up for one, the city is no longer contributing to that employee's retirement benefits--usually a contribution of 12 percent.

A representative from the Municipal Employees Union was unavailable for comment.

According to DeMaio's report numbers, which were obtained from the retirement system and comptroller, the change to DROP interest rates alone would reduce the overall unfunded pension liability by roughly $250 million by financial year 2012.

"We have reached the lowest level of pension funding ever--66 percent," DeMaio said. He faulted the DROP program on top of SPSP 401(k) balances, which DeMaio said allow employees to "double-dip" into bank retirement payouts while continuing to draw a city paycheck. Report numbers show that employees' retirement allowances can exceed annual salaries, even without factoring in DROP payouts and SPSP benefits.

The percentage on DROP account interest rates is on the agenda for the retirement board's Feb. 20 meeting.

                                            

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