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San Diego City Auditor Cites Retirement System's High Costs

A performance review by the office of San Diego city auditor Eduardo Luna has found room for improvement in the way the city's long-controversial pension system is run.

"Our audit found that when compared to peers, SDCERS’ administrative expenses—approximately $15 million in fiscal year 2010—are higher, its plan funding level is lower, and actuarial assumptions are more conservative.

"However, the contentious history between SDCERS and the City uniquely impacts its current operating environment and leads to additional expenses for the system," according to a summary document accompanying the full 88-page September 30 report.

"Specifically, we found that numerous, ongoing lawsuits have resulted in higher-than-peer legal and actuarial costs; efforts to maintain independence and transparent decision-making contribute to higher personnel, rent, and information technology expenses; and measures to protect its Board of Administration trustees if they are personally named in a lawsuit have resulted in a $550,000 annual expense for fiduciary liability coverage.

"However, even after accounting for the uniqueness of SDCERS’ operating environment, certain administrative costs still appear high compared to peers, and we noted that opportunities exist to streamline operations and reduce costs."

The report goes on to say:

"We found also that SDCERS’ investment management expenses for fiscal year 2010 were higher than peers, largely because its investment portfolio was almost entirely actively-managed—as opposed to assets invested in passively managed funds, which carry significantly lower fees.

"Lastly, we found that the City spent almost $100,000 in fiscal year 2010 to reimburse high-income retirees for their Medicare Part B Income Related Monthly Adjustment Amount (IRMAA) premium even though this benefit is not explicitly defined in the Municipal Code.

"In addition, the City could reduce expenses if it offset Industrial Disability Retirement (IDR) benefits by income recipients receive from outside employment and/or a Workers’ Compensation award."

The full report contains separate responses by system CEO Mark Hovey and Risk Management Director Greg Bych.

Pictured: Eduardo Luna

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A performance review by the office of San Diego city auditor Eduardo Luna has found room for improvement in the way the city's long-controversial pension system is run.

"Our audit found that when compared to peers, SDCERS’ administrative expenses—approximately $15 million in fiscal year 2010—are higher, its plan funding level is lower, and actuarial assumptions are more conservative.

"However, the contentious history between SDCERS and the City uniquely impacts its current operating environment and leads to additional expenses for the system," according to a summary document accompanying the full 88-page September 30 report.

"Specifically, we found that numerous, ongoing lawsuits have resulted in higher-than-peer legal and actuarial costs; efforts to maintain independence and transparent decision-making contribute to higher personnel, rent, and information technology expenses; and measures to protect its Board of Administration trustees if they are personally named in a lawsuit have resulted in a $550,000 annual expense for fiduciary liability coverage.

"However, even after accounting for the uniqueness of SDCERS’ operating environment, certain administrative costs still appear high compared to peers, and we noted that opportunities exist to streamline operations and reduce costs."

The report goes on to say:

"We found also that SDCERS’ investment management expenses for fiscal year 2010 were higher than peers, largely because its investment portfolio was almost entirely actively-managed—as opposed to assets invested in passively managed funds, which carry significantly lower fees.

"Lastly, we found that the City spent almost $100,000 in fiscal year 2010 to reimburse high-income retirees for their Medicare Part B Income Related Monthly Adjustment Amount (IRMAA) premium even though this benefit is not explicitly defined in the Municipal Code.

"In addition, the City could reduce expenses if it offset Industrial Disability Retirement (IDR) benefits by income recipients receive from outside employment and/or a Workers’ Compensation award."

The full report contains separate responses by system CEO Mark Hovey and Risk Management Director Greg Bych.

Pictured: Eduardo Luna

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LOL...wait until the new GASB rules go into effect next year where they have to expense out the future pension costs on the books, you think they have problems now! This will be like a playground brush up between 1st graders compared to what the new accounting rules bring.

Oct. 25, 2011

The real current question is how much of those excessive fees are kicked back to city bureaucrats and city politicians. What a wonderful spot to hide the graft and corruption. The pension system is broke anyway, so what's a little more siphoned off every year?

The amazing thing is that this report came out of the city bureaucracy. A few yeara ago, even when the city hired so-called "independent" auditors and paid them vast sums, they often found nothing to complain about and assisted the whitewash.

Oct. 27, 2011
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