City of San Diego Retired Employees Association
October 8, 2024
Board Meeting Minutes
NOTES: All votes were unanimous unless otherwise noted
Call to Order: The meeting was called to order by President Mike Bresnahan at 9:35am.
Board Members Present: Jim Baross, Clay Bingham, Mike Bresnahan, Chris Brewster, Shirley Hall, Joan Hernandez, Brad Jacobsen, Stacey LoMedico, Joan McNamara, Mary Ann Stepnowsky, and Dick Wilken.
Guests Present: Joe Flynn
AGENDA: There were no additions to the agenda.
MINUTES: The minutes of the September 2024 Board meeting were approved.
TREASURER’S REPORT: Approval of the Treasurer’s Report was deferred to the November meeting.
INVESTMENT COMMITTEE REPORT: No report
RETIREMENT BOARD REPRESENTATIVE’S REPORT: Chris reported that he has been working on two issues at SDCERS:
1) He is trying to diminish barriers to disability retirement
2) He is investigating why active City employees are unable to make additional contributions to their retirement accounts; this is apparently allowed, but has been in legal limbo for 15 years.
Chris’ full report is attached.
COMMUNICATIONS AND INFORMATION ITEMS:
1) The Retiree Health Fair will be on Wednesday October 30, from 10:00 to 2:00 at the Balboa Park Club. Jonathan Hayes will be providing goodies for attendees. Board members are encouraged to attend. There will be a meet-up with REA, SDCERS, BOS, and other City retiree organizations at 8:30.
2) The Board Retreat is scheduled for Friday, November 1 from 9:30 to 1:30 at Mission Trails Park.
3) The briefing with Council Member Henry Foster is scheduled for October 31.
4) Joan McNamara reported that the Nominating Committee is having trouble recruiting members to serve.
IMAGE ENHANCEMENT UPDATES:
Stacey gave a final summary of our aquatics program expenditures. We approved $11,500 and expended $8670.71. The breakdown was:
$2007 for three Junior Lifeguard scholarships
$251for Junior Lifeguard uniforms
$783 to Tierrasanta pool
$2496 to Martin Luther King pool
$3134 to Kearny Mesa pool
ACTION ITEMS: Info about the Holiday Party will start going out November 18.
OTHER COMMITTEE REPORTS
Membership: No report.
Newsletter: Deadline for the next issue is October 18 at 8:00am. Material should be sent directly to Connor Sorensen and Mary Ann Stepnowsky.
OTHER RETIREE/ACTIVE EMPLOYEE ASSOCIATION REPORTS
Retiree Issues Task Force (RITF): Dick reported that Benefit Outsourcing Solutions (BOS) participated in the meeting. BOS has never handled retirement benefits for public entities, but will work with REA to create their own website that includes our material. Their website and phone line will be going live soon.
Retirement Security Roundtable: There was discussion about the Federal Social Security windfall penalty. The next meeting will be in March.
MEA: Jim reported that new Police Chief Scott Wahl met with MEA and was very impressive and that he seemed open and eager to introduce himself to other communities/constituents. This could be another program.
PROGRAMS: Clay reported that he expects to have commitments from all 2025 speakers by November.
ADJOURNMENT
The meeting was adjourned at 10:45am.
Respectfully submitted,
Brad Jacobsen
Secretary
REA Board Briefing – Chris Brewster – October 8, 2024
Retiree Health: I anticipate that Mike Bresnahan and Dick Wilken will report on this, so I’ll keep my comments brief. I joined REA, RFPA, SDCERS, and City personnel in an RITF meeting with reps of the incoming corporation who will manage retiree health.
It’s important for all to understand that for many years SDCERS has been administrating retiree health for the City, essentially as a management contractor, albeit at cost. The obligation to fund retiree health (for those with health benefits) has always been the City’s, not SDCERS’. SDCERS was quite happy to have a new manager take over and it is hoped by all that this will result in a higher level of service.
Over the years, there has been an increasing alliance among the two retiree organizations, SDCERS, and the City to discuss and coordinate communication with members, as well as to address areas of concern. I anticipate that SDCERS will eventually exit this space entirely.
I am hopeful that the new contractor and the City will fully engage the two retiree associations going forward, in a manner similar to what SDCERS has been doing. At our meeting, Dick emphasized the importance of this so that we can ensure that consistent, correct messaging is sent by all.
A letter is going out to all retirees, which you will soon receive, that explains how things will work. Unfortunately, it erroneously states, “As of January 1, 2025, retirees can submit for reimbursement for their Medicare Part A premiums, retroactive to January 1, 2024.” As we’ve discussed, thanks to work by Joan and MEA, this actually applies only to retirees with an allowance option of A or B. Hopefully, in future, REA and RFPA will have a chance to review these sorts of communications before they are finalized to help avoid misunderstandings.
Return on Investments: In September, SDCERS staff reported that net return on investments was 7.2% for fiscal 2024. Our investments are highly diversified. Investments in the private equity sector were a drag on overall returns though. For comparison, for the same fiscal year reporting period, a portfolio of 75% invested in the S&P 1500 index (which includes the S&P 500, S&P Mid-Cap 400, and S&P Small Cap 600) and 25% in an index fund that tracks the Bloomberg US Aggregate Bond Index yielded 16.08%.
I have shared with the SDCERS Board a research article entitled, “How Do Public Pension Plan Returns Compare to Simple Index Investing?” This is a study by the Center for Retirement Research at Boston College covering 2000-2023 which compared active investing by pension funds (e.g. stock picking) to a passive, index fund investment approach that a pension fund might use, with an example of a conservative 60% stock, 40% bond index fund-based investment. One excerpt: “Pension funds’ annualized aggregate returns since 2000 have been virtually identical to a simple 60-40 index portfolio. If public plans cannot reasonably anticipate higher long-term returns from a complex active approach, they should stick with a simple and transparent strategy.”
I have also shared with the Board a study from a Wharton seminar I attended in 2023. This one found, for example, that a 75% stock, 25% bond allocation in rolling five and ten-year averages from 1900-2022 yielded 9% and 8.9% respectively.
Disability Retirement Issues: As you know, I have repeatedly discussed with the Board and staff the urgency of addressing the problem of situations where an employee is barred from employment due to a job-related injury but excluded from disability retirement benefits by SDCERS.
As a result of these discussions, it was agreed that the CEO would write a letter to the Risk Management Director requesting opening discussions to resolve this issue. That letter was sent, and preliminary discussions have taken place. I am hopeful of a positive outcome and optimistic that these cases will become rare or nonexistent in the not-too-distant future.
I would note that there was yet another incidence of this problem at our September meeting in which a 31-year general employee applied for disability retirement and the SDCERS doctor who evaluated her agreed that she was entitled to disability retirement, but staff contested the application and sent her to adjudication anyway.
According to the judge, “DROP participants are being treated differently from other applicants in that SDCERS requires them to apply for disability retirement benefits at least 12 to 18 months in advance of their DROP deadline in order to be eligible, unlike other service retirees. Yet there is no express authority for this position.”
The judge found in her favor. I made a motion at the Disability Committee to both approve her disability retirement and to reimburse her attorney’s fees. That motion was approved by the Disability Committee but is being scrutinized by the General Counsel to determine if we can reimburse. My view is that staff lacked the authority under Board policy to send this case to adjudication and thus the member should not have to incur the expense of an attorney.
Additional Contributions: In my August comments, I noted that at my urging an existing SDCERS policy was amended to allow active members to make “Additional Contributions,” in accordance with the City Charter and San Diego Municipal Code. These would be post-tax contributions with certain limits, which would add to a member’s defined benefit upon retirement.
SDCERS leadership has met with the City of San Diego to advise them of this and to gauge their interest, but as yet no program to allow this has been rolled out. I have expressed the opinion that SDCERS must begin offering this forthwith, since it is part of the SDMC and the SDCERS Board Policy.
I am hopeful that in the near future active members will be allowed to make additional contributions. I will monitor this closely. I will note that I’ve received communication from a former high level City administrator who mentioned that she and other retirees are quite concerned that SDCERS was not allowing these contributions and appreciative that I am following up on this. I must say that I would likely have taken advantage of this option had it been offered.
WEP and GPO Proposals: As we’ve discussed, the Social Security Windfall Elimination Provision and Government Pension Offset, which effectively reduce Social Security benefits for those with government pensions, are proposed for repeal and/or reform. It has been reported that enough members of Congress have submitted a petition to force a vote on the issue. It is speculated that would happen during the lame duck session after the election. What may come of this is unknown, but there are companion bills in Congress and the Senate. The House bill has 329 cosponsors (a 61% majority).
Fiduciary Counsel Presentation: Fiduciary Counsel, who advises the Board, provided a thorough briefing at our September meeting. One takeaway that was emphasized: Under the California Constitution and other applicable law, a fiduciary (Board members are fiduciaries) must discharge duties solely in the interest of, and for the exclusive purposes of providing benefits to, participants (i.e., members) and their beneficiaries. The Board’s duty to SDCERS members and beneficiaries “shall take precedence over any other duty.”
Annual Affidavits: All members with disability retirements are required to complete annual affidavits testifying to their continued disability, until they reach normal retirement age. I have requested that some modification of the policy be considered so that a person with, for example, an amputated limb, is not required to complete the annual affidavit. I have been promised that this will be brought up for discussion in early 2025.
Proposition B Fix for PD: Although Proposition B did not close the pension system to new police hires, it did impact police pension benefits in other ways. All police officers belong to a certain plan tier based on their initial hire date with the City, and pension benefits may be calculated differently depending on the specifics of the plan tier. Proposition B created a new plan tier for all police officers hired on or after July 1, 2013, known as “Tier V.” This new Tier V had three main differences compared to the previous plan tier:
1) The calculation of final compensation changed to the highest average pensionable pay received over 36 consecutive months, rather than three years which did not have to be consecutive;
2) The benefit cap would be a different percentage depending on retirement age, compared to the previous 90% cap; and
3) Police recruits would not participate in SDCERS while in the Academy, only joining SDCERS once they graduated and became a sworn officer.
These changes slightly decreased pension benefits for those in this plan tier compared to those of police officers initially hired between August 1, 2012 and July 1, 2013 (“Tier IV”). So, since these changes were enacted as a result of Proposition B, and Proposition B was declared invalid, the SDPOA and City came to an agreement in June of 2024 to essentially dismantle Tier V and move all active Tier V police officers into Tier IV. In September of 2024, the Municipal Code was officially amended to reflect this agreement.
Therefore, all police officers initially hired on or after August 1, 2012, and who were still on the payroll on September 9, 2024, now have the same pension benefits, highlighted by the following aspects:
1) Retirement factor of 2.5% at age 50, increasing to 3.0% at age 55 or older;
2) Final compensation calculated as the highest pensionable pay averaged over three years, which do not have to be consecutive;
3) A 90% benefit cap; and
4) Membership in SDCERS beginning on the first day of the Police Academy (or their first day of City employment, if they are transfers).
Police officers are only impacted by these changes if initially hired on or after July 1, 2013.
Other than the modifications to future pension benefits, this agreement increased the contribution rate between 1 and 2 percentage points for those with an entry age younger than 24 (approximately 136 officers). The majority of officers affected by this change (approximately 399 officers) have an entry age of 24, 25, 26, or 27 – the increase for this group was between 0.2% and 0.8%. For those with an entry age of 28 or older, the increase was negligible or stayed the same. The new rate became effective on September 9, 2024.
Part of the agreement between the City and the SDPOA was that the City would be responsible for any underfunding that occurs as a result of these changes. Thanks to SDCERS Board member Louis Maggi, from whose more detailed explanation this is excerpted. His complete version will appear in the POA newsletter in October.