Mayor Filner, SDCERS Urge City Attorney to Drop Frivolous Lawsuit Costing Taxpayers Millions

Date: Apr 12, 2013


Mayor Filner, SDCERS Urge City Attorney to Drop Frivolous Lawsuit Costing Taxpayers Millions

Mayor Bob Filner and San Diego City Employees’ Retirement System Board President Herb Morgan today publicly urged City Attorney Jan Goldsmith to drop the City’s lawsuit against the Retirement System, calling the case a waste of taxpayer dollars.

The Mayor and Mr. Morgan said the lawsuit is inconsistent with the City Charter and Municipal Code as well as the fundamental principles of pension administration.

"This lawsuit is a waste of taxpayer dollars," Mayor Filner said. "The City Attorney sued the City’s retirement system over a pension funding issue, but City Hall is required to pay the legal bills for the case. That’s $3.2 million over the last two years and it could continue to grow if we don’t stop it now."

"So essentially, the City is borrowing money to sue itself – at an interest rate of 7.5% -- and forcing taxpayers to foot the bill!" he added.

The case calls into question the Retirement System Board’s decades-long interpretation of City Charter section 143, which requires the City and its employees to contribute a substantially equal share of pension costs, except in the case of financial liabilities accruing because of past service of the employees.

"Leadership is about knowing when something is worth fighting for and when it’s time to say enough. After more than two years of fighting, more than $3.2 million in legal expenses and less than stellar feedback from a judge, it’s time to put this frivolous lawsuit to rest," stated SDCERS Board President Herb Morgan. "We urge City Attorney Goldsmith to do right by the City and taxpayers by ending this lawsuit."

The Retirement System and City leadership – for more than 70 years -- have interpreted the Charter to exclude actuarial and investment gains and losses. Virtually all public pension plans allocate responsibility for actuarial gains and losses to the plan sponsor, and that is characteristic of public sector defined benefit plans. Goldsmith maintains that the substantially equal requirement applies to actuarial and investment gains and losses in addition to the normal cost of normal retirement allowances.

The San Diego City Employees’ Retirement System (SDCERS), the City's pension administrator, requires annual contributions from the City and its workers in order to pay current and future retiree benefits.

The City's annual payment and the contribution rate for employees are set by the SDCERS’ Board of Administration based on an actuarial valuation each year. This valuation determines liabilities associated with active employee current year service (normal cost), and liabilities associated with variances to actuarial assumptions (experience gains and losses). Experience gains and losses include investment gains and losses relative to the assumed rate of return, currently set at 7.5%. The City has always been responsible for 100% of the experience gains and losses and has acknowledged that responsibility to San Diego voters.

"Since SDCERS started investing in the public equity market in 1983, the system has generated more than $1.4 billion in returns that exceeded the actuarially assumed rate of return," stated SDCERS Chief Executive Officer Mark Hovey "It was convenient timing for City Attorney Goldsmith to pursue this case in the wake of one of the most significant declines in the stock market since 1929."

Since the case was filed in 2010, the costs incurred by the City for SDCERS’ defense total more than $3.2 million to date and continue to grow. The City is obligated to pay for SDCERS’ legal expenses. Now, more than two years into litigation, the City’s case seems to be wavering.

In December 2012, Judge Zimmerman denied the City’s Motion for Judgment on the Pleadings on both procedural grounds and on the merits after the City unsuccessfully argued that the court should rule in its favor without the need for a trial. In his ruling, Judge Zimmerman noted that the City failed to address and refute SDCERS’ interpretation of the substantially equal language of the City Charter and the defenses asserted by SDCERS. Judge Zimmerman also noted that the substantially equal provision of the Charter is ambiguous and that he was not convinced that the City’s interpretation should be adopted.

Subsequently, the City Attorney filed a Motion for Summary Judgment (MSJ) restating the arguments claimed in the Motion for Judgment on the Pleadings. Last month (March 2013), in the face of strong opposition from SDCERS and the employee unions, Goldsmith withdrew the City’s MSJ, a method normally used to resolve litigation without the need for a trial. The City Attorney’s Notice of Withdrawal cited the need to focus its resources on the upcoming trial, despite the fact that the primary goal of an MSJ is to avoid preparation for and the expenses associated with trial.

The court’s ruling and Goldsmith’s actions effectively demonstrate SDCERS’ strong position in this case and signal that the City’s case may be too weak to prevail. 

A trial date is currently set for May 14, 2013.


To watch video of the press conference, click here.

To view Mayor Filner's press release in PDF format, click here

Document Under Categories: Litigation, Press Release