SDCERS Special Meeting June 22, 2005 - Submitted by Patricia Karnes

   More discussions on the SDCERS waiving issue at the City Council on Monday, June 27th. Ewell plans to discuss pension solutions and budget priorities in July.

These are my quick notes from the SDCERS Special Board Meeting June 22, 2005. Virginia Silverman's notes are probably more precise.
   Present: Larry Grissom, Lori Chapin, Chair-Steve Meyer, Bill Sheffler, John Thomson, Peter Preovolos, Mark Sullivan, Bob Wallace, Tom Page and Susan Snow.
Kipperman was sworn in.
   Basically the Board kept things as they are and have asked staff to recommend other approaches to figuring interest on the employee/employer contributions and DROP next time. Vote on employee/employer contribution was 8-1 with Bill Sheffler voting no. DROP interest vote was 7 -1, Bill Sheffler voting no and Kipperman abstaining because he didn't understand it.
   Comment: John Casey, former 15 year Board member employee representive and still actively MEA, offered his DROP holdings as an example- $350,000. He said the total return was 28% on his DROP, 20% to SDCERS ($54,000) and 8% to him. He asked why the Board would want to reduce the UAAL by reducing the employee/employer contribution interest. Peter thanked Casey for coming and offering to help the Board.
   Discussion: Staff discussed differences between DROP and employee/employer contribution interest. DROP had active and retired members, raising the possibility of two different rates, due to the fact that employees could not withdraw their DROP and retirees can withdraw their DROP. DROP had bigger vesting rights and payments needed to be announced forward in time, not after the payment period. Employee/employer contribution interest was based only on the amount in respective accounts on the 30th of June each year. John Thomson said there needs to be a cost-benefit study of lost of income for Cers before making DROP interest changes. He was also concerned about changes in the employee/employer contribution interest and employees feeling it is a change of benefits and there will be another lawsuit. Wallace added that it was his role to be the doubter again in the discussion. Grissom responded to Peter's questions, saying DROP is not used for actuarial evaluation and was a lump sum distribution, like a money market situation. Grissom told Peter the City Council needed to change the law to give employees the right to withdraw from DROP. Grissom told Sheffler that a reduction of the interest rate on DROP to 4% on the $109 million from DROP investments would reduce the UAAL. Lori said the Board holds responsibility for the employee/employer contribution interest, but it would cause employee consernation to lower the interest. Steve Meyer pointed out the long-term horizon of returns versus the current short term return. Tom Page brought up the only law that is never repealed, the law of unintended consequences, and asked if any pension payment was based on employee/employer contribution interest rate. Staff said SDCERS' defined benefit plan is based on formula, not interest rate. Lowering the employee/employer contribution rate would change short-term calculation for non-retirement employees, but no change for the person who retires. Doug McCalla said this would free up money for the waterfall payments. Grissom said if the interest on the employer/employee interest was lowered, it would reduce the City's contribution amount and would increase the money available to pay the 13th check in the waterfall. Peter said there was social value of decision to give advanced notice of changes and why should SDCERS reward people who leave the system. Bill Sheffler's suggestion to use the Erisa recommendation of just under 5%, was greeted mostly positively. Grissom had opened the meeting saying there was not enough time to give the Board all the information that they needed for interest crediting. Later, Sheffler and Susan Snow noticed that staff could have brought both interest rates up in May, when there would have been time to actually change rates before June 30th. She said it would smell if they changed a Board rule on how the DROP interest is credited at this meeting. Staff said the Board must document why they are changing rates, procedure used to analyze, and how they are changing it.
   Grissom announced mail from Rick Roeder, Rosie Wiseman on the waiver, and the Controller who would take no action on Aguirre's request for adjusting pension payments.

-- Patricia