| CITY OF SAN DIEGO RETIRED EMPLOYEES’ ASSOCIATION The meeting was called to order by President Nancy Acevedo at 11:00 a.m. BIRTHDAY CELEBRANTS: Several people announced their birthdays this month, including Susie Davenport, who announced that she had turned 80 years old! ACTION ITEM: By-Laws Proposed Revisions: The memo to the General Membership regarded proposed revisions to the Association By-Laws and Rules of Order, as follows: The addition of the Helping Hands Committee as a Committee of the Board; the addition of one more required signature for “withdrawals or transfers from accounts maintained by the Treasurer”; and the naming of the Membership Chair as a member of the Board of Directors of the Association. There was unanimous consent to these by-law revisions. RETIREMENT BOARD REPRESENTATIVE REPORT: Disability Committee: Dave Hall, the Association’s representative to the Retirement Board, is now the Chair of the Disability Committee for SDCERS. They meet every Tuesday before the Thursday Board Meeting, so the next Disability Meeting will be Sept. 15. People who are interested in this issue are encouraged to attend. Scoop Feedback: Dave said that the Retirement staff would like to have feedback on the “Scoop.” One person offered that both the new retirees and the deceased are no longer listed in their newsletter. Dave said that this information is included on-line, but not in the printed version. Corbett and 13th check will be discussed by the full SDCERS board at the November meeting, and retirees who are interested in these issues are encouraged to attend. SPEAKER: Andrew Donohue of the Voice of San Diego introduced our speaker, Bill Sheffler, former member of the SDCERS Board and a professional auditor. Sheffler was named by SDREA as their Person of the Year in 2007 for his work on behalf of retirees. Following are Mr. Sheffler’s presentation: The information on the consequences of municipal bankruptcy on a retirement plan sponsor by the subject city is thin. In the Orange County bankruptcy, and subsequent recovery, their pension plan emerged without any changes. When we are talking about municipal bankruptcy, there should be no assumption that the plan sponsor’s bankruptcy would lead to a shutdown or bankruptcy of their pension plan. But the flow of contributions to the plan may be dramatically reduced. This is the consequent concern for the plan’s trustees, and beneficiaries. The history of distressed pension plan operations in the private sector is much more detailed. There is also a substantial consistency in the benefit payment actions in those cases. I propose that this history and the current state of regulation of private sector plans gives us a good idea of what might occur if a municipal plan were in distress. Pre-ERISA the pension plan assets of private sector employers were generally subject to creditor claims. There were elaborate measures taken to provide creditor protection however. Those measures were not always successful. After the passage of ERISA in 1974, creditor protection was much easier for a retirement plan to attain. At that time, federal regulation established the priority of claims for beneficiaries of distressed plans. Those priorities were: 1) Employee contributions had the highest standing, if plan assets were sufficient requests for refunds were to be honored first. Voluntary contributions had priority over mandatory contributions. 2) Next, assets are allocated to plan benefits that were payable three years before the plan ended. Benefits in pay status with less longevity were subordinate. 3) Benefits payable to employees eligible for normal retirement but still employed. 4) Accrued benefits payable in the future to employees who were not yet eligible for normal retirement. Except for 1), these distributions are to be made in the form of annuities, and not lump sums. In the case of 3) and 4), the allocations were based on benefits payable at normal retirement age. Those annuities were the joint-and-survivor type for married participants and single life annuities for the others. They did not include early retirement or any subsidies connected with early retirement. Neither did they include any pre-retirement death benefits. This group should understand that the funded security of this plan is not the funding ratio most widely advertised. The actual funded status, in case of plan shutdown, is expressed deep in the actuarial report in an exhibit called “FASB 35”. This funding ratio does not include any allowance for future accrued benefit on account of salary increases after the valuation date. For instance, if a non-retired participant with average monthly compensation of $3,000 has earned a benefit of 25% of pay on the valuation date, then that benefit ($3,000 x .25) $750 per month is the amount valued. The traditional funding ratio includes an assumption of future salary increases until retirement, and a larger benefit due to those increases. If this individual was 10 years from retirement the valued benefit would be $1,110, instead of the $750. Finally, it should be pointed out that a municipal bankruptcy is much more difficult to obtain than that of a private sector company. In the private sector, the employer only needs to demonstrate that its debts exceed its assets. Cities must demonstrate that they do not have sufficient cash flow to pay their current bills, regardless of the amount of debt they have. A warm ovation was accorded Bill Sheffler at the end of his presentation. Respectfully submitted, Ruth Ann Hageman, Board Secretary rev |