Membership in S.D.'s Pension Board at Issue
Politics: Councilman Seeks to Keep Industry Experts Off the Panel
BY MIKE ALLEN
Creating a retirement board with a majority of outside members makes sense, but excluding investment advisers from such a board strikes the chairman of a pension reform committee as a clear case of retribution.
"I believe it's personal," said April Boling, the chair of a local pension reform commission on a recent San Diego City Council proposal to prohibit those in the investment advisory profession from serving on a new retirement board.
The exclusion appears directed against Diann Shipione, a member of the current retirement board who has been an outspoken critic of how the retirement fund has been managed.
"I believe the provision (to exclude investment professionals) actually makes sense, but if it does make sense, then why didn't it make sense five or six years ago?" Boling said. "The timing on this is highly suspect."
San Diego City Councilman Michael Zucchet, who made a last-minute insertion into the proposed charter amendment, was unavailable for comment, but his spokeswoman said he did so because of possible conflict of interest charges arising from the board's investment decisions.
Katie Keach, Zucchet's spokeswoman, said he denies the change was directed personally at anyone.
"He didn't even know what Diann Shipione did until it was in the paper the next day," she said.
Shipione, who works for UBS Financial Services as vice president of investments, called attention to the city employees' pension fund problems in a memo she sent to both the fund's administrator and San Diego Mayor Dick Murphy in September.
A series of errors and omissions regarding a $1.1 billion unfounded liability of the employee pension fund is at the heart of an ongoing additional audit of the city finances and prompted a dual probe by the U.S. attorney's office and the Securities and Exchange Commission.
Locked Out Of Bond Market
Because of the lack of a new annual financial report and the federal investigations, the city has effectively been locked out of the public bond market. Hundreds of millions of dollars of planned borrowing to address a host of capital funding issues are on hold until the issues are resolved.
The council attempted to rectify the pension under-funding issue last week in a series of proposed changes -- chief among them the issuance of $200 million in pension obligation funds. The council authorized the hiring of a team of legal and financial consultants needed to create a bond package. The city wants to issue the bonds within six months.
Two other proposals require a majority approval of city voters because of changes to the city charter. The first would require the city to make up the $1.1 billion unfunded liability over 15 years and prohibit the city from under-funding the pension fund as it has in the past.
The second charter amendment calls for expanding the retirement board by two members to 13, requiring that seven members be non-city employees or retirees, and that all of the outside members have a minimum of 15 years' experience in pension administration, actuarial practice, investment management, real estate, banking, or accounting.
However, Zucchet's language also called for none of the members to be employed as either stockbrokers or bond brokers, or real estate brokers.
Boling said the pension reform commission advocated requiring all board members be outsiders, and that most of the commission's members could live with the compromise.
The current city retirement board has only four outside members.
All the city's proposed pension reforms are smoke and mirrors to hide the larger issue of cities and counties approving huge increases in pension allocations that now threaten to bankrupt the agencies, said Richard Rider, a local Libertarian Party member and longtime critic of how the city is managed.
"The city pension reforms fail to do anything to reduce the real problem, the level the pensions are set at," Rider wrote in a commentary published in this week's San Diego Business Journal. "Nothing has been passed to control these costs. Even the wimpy 'two-tier' pension plan some have suggested, lower pensions for new hires, is not included."
While the county's retirement board seeks a balance between members who are insiders, current employees and retirees, and outsiders, the reality is that only three of its nine members are technically outside members.
The other six members are direct county employees, one retired employee and two elected county officials.
Although it has attracted little attention, the county's pension fund is also in a deficit position, with an unfunded liability of $1.43 billion as of June 30, 2003, according to a report on the board's Web site.
That amount was 75.5 percent of what the actuarial funding level should be. To replenish the county's unfunded pension liability, it recently issued $450 million in pension obligation bonds.