Pension Pros Warn That Hocus-Pocus Could Be Used to Lower Annual Payment to System
Mayor Jerry Sanders has named three new members of the San Diego City Employees' Retirement System. Three veterans are stepping down. Accountant April Boling warned a meeting of the City of San Diego Retired Employees' Association April 14 that, "As the pension obligation grows. and there is tremendous stress on the City's budget, there will be tremendous pressure to change the assumptions" so the required payments, called the annual required contribution, or ARC, could be lowered. Because the City plundered the pension fund beginning in 1996, the required payments will be backbreaking in coming years. One way the SDCERS board could reduce those annual payments is by removing or substantially modifying what is called the "corridor," which in effect is a method to make sure that so-called "smoothing" does not get out of hand. Because the returns on the pension portfolio might be great one year and horrible the next, pension plans use smoothing techniques, or averaging out the returns over a period of, say, four years. But the corridor keeps the smoothing within honest bounds. "If there is an event in the market that is significant and substantial and should be recognized, the ARC should reflect it," says Bill Sheffler, one of the board members who was removed without his concurrence. If the board monkeys with the corridor, the ARC could be too low -- thereby producing a re-run of what has brought the City to the brink. Sheffler guesses that, "Some people who want to curry favor with the mayor are doing some backpedaling." He feels that one reason he was not reappointed was that he made it clear that SDCERS must insist that smoothing be honest. Boling, who narrowly lost for the 7th district council seat, says, "I have an uncomfortable feeling about this. It would be very easy to do what has been done in the past -- attempt to solve problems by underfunding the pension system. I am hoping that by surfacing the issue that we can preclude this from happening." Thomas Hebrank, most recent SDCERS president, says he is voluntarily stepping down. He doesn't think such hanky-panky is in the cards. Board member Peter Preovolos, a former president who is also leaving, could not be reached for comment.
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- SDCERS Will Look into Looser Accounting — July 17, 2009
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