San Francisco Sues Its Retirement Board

SAN FRANCISCO (CN) — The San Francisco controller is suing the city's retirement board in an attempt to halt what he claims are unlawful payments to certain retired city workers.

In a petition filed last week in San Francisco County Superior Court, City Controller Ben Rosenfield and the City and County of San Francisco say the retirement board cannot legally authorize additional payments to former employees who retired prior to 1996. They also say the payments will create a new $148 million "unfunded" liability that will result in cuts to city services and bigger deductions from the paychecks of current city employees.

In July, a unanimous vote by the Retirement Board of the San Francisco Employees Retirement System scrapped a requirement that conditioned cost-of-living adjustments (COLAs) on the value of retirement fund assets for city employees who retired before November 1996.

The "fully funded" requirement, which was added by an amendment to the city charter in 2011, says that supplemental COLAs can only be paid if the retirement system ended the previous year fully funded. A plan is fully funded when its assets are considered sufficient to meet its future liabilities. This is done by comparing the market value of plan assets to actuarial projections of pension payment obligations.

The controller and the city say the board overstepped when it voted to ignore the fully funded requirement.

"It is a fundamental rule of law that the Retirement Board has no authority to determine the level or amount of benefits payable to retirees of the San Francisco Employees Retirement System," the city's lawsuit says.

In its petition, San Francisco is asking the superior court to issue a "writ and judgment directing the Retirement Board not to disburse unauthorized funds, and to cease and desist from processing unauthorized payments."

According to Rosenfield, the board's decision also flouts a state appeals court ruling that he says settled the issue of who is entitled to receive supplemental cost-of-living adjustments in San Francisco's plan.

Last year, the California First District Court of Appeal ruled that the 2011 full-funding amendment cannot be applied to current employees or those who retired after 1996.

The appeals court also found that the amendment's limitations could be placed on COLAs for pensioners who retired before COLAs were introduced to San Francisco's plan in 1996.

"Such pre-1996 pensioners had a vested right to the pension benefits that were in effect when they retired, having earned such benefits as an element of compensation, but they had no contractual expectation while in service that they would receive a supplemental cost of living allowance," Judge Henry Needham wrote for the appeals court.

However, the minutes from the July meeting show that retirement board members felt the appeals court decision was ambiguous and that they had a constitutional duty to carry out what they saw as the intent of city voters who originally approved COLAs.

San Francisco and its controller are represented by Arthur Hartinger of Renne Sloan Holtzman Sakai in Berkeley, California.The Executive Director of the San Francisco Employees Retirement System, Jay Huish, was out of town and did not return a call requesting comment.

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