Pension lawyer: County's order to cut benefits out of order

By: GIG CONAUGHTON - Staff Writer | Thursday, February 1, 2007 10:43 PM PST ∞

SAN DIEGO ---- County supervisors have no legal right to demand that the independent association that manages the county's $7.3 billion pension fund cut pensioners' health care benefits, the association's lawyer said Thursday.

In addition, San Diego County Employees Retirement Association lawyer Regina Petty told her board members that Supervisor Dianne Jacob, who also sits on the association's board, has a conflict of interest ---- she led the county's call to cut the health benefits ---- that should prevent her from voting on the health benefit issue as an association member.

The county has given the association until June to cut health benefits, or face the elimination of a special tax-exempt fund. County officials believe eliminating the fund would slash health benefits to all county pensioners.

Jacob did not attend Thursday's association meeting. Jacob was called for comment. However, aides said she was out of state on a previously arranged trip. They also said all questions about the health benefit were being referred to the county's lawyers.

John Sansone, the county's top lawyer, said Thursday that his office disagreed with Petty's assessment ---- and said Jacob did not have a conflict of interest and that supervisors had a legal right to eliminate the tax-exempt fund.

Association board members, meanwhile, took no action Thursday except to make public Petty's written legal opinion that Jacob had a conflict of interest.

County supervisors, led by Jacob and Pam Slater-Price, adopted a resolution in December to try to force the retirement association to cut health benefits to 2,613 current retirees and approximately 15,000 future retirees. The county plan would continue health benefits to roughly 7,000 older, poorer retirees.

Supervisors said that rapidly rising health costs had created a "ticking time bomb" ---- a financial one that could blow up the entire $7.3 billion pension fund.

Petty, responding to a handful of the two dozen legal and financial questions that the association's board posed in January to the county's demand, said Thursday:

- that the association's fiscal responsibility was to do the best thing for the pensioners ---- not the county;

- that the county supervisors' opinion ---- in this case, their resolution to cut the health benefit ---- should carry no extra legal weight in the minds of association board members. That "the Board of Supervisors is just like any single person talking to the board";

- that the Board of Supervisors "was encroaching upon the individual authority" of the association by trying to force the association to approve the supervisors' demand to cut health benefits.

Petty said she based her opinion on her review of the "1937 Act" that regulates the county's pension fund system and 1992's Proposition 162 ---- the California Pension Protection Act ---- that amended the California Constitution.

However, Petty said, she could not find any existing cases that mirrored the current tensions between the county and association. Petty also said that her legal opinion might not be upheld by a judge.

Petty told association board members that tax experts would address the association in March to answer financial questions revolving around the county's demand on the health benefit. She said that would include a discussion about whether the county's tax-exempt fund, and whether the association could still legally give retirees' health benefits if the fund were eliminated.

The retirees' health benefits, which range up to $400 a month, have never been guaranteed. But the county and association have been granting and paying for them since the 1970s, using "excess earnings" from the pension fund's investments.

The association defines excess earnings as annual investment earnings that exceed the association's 8.25 percent investment return goal.

Sansone, meanwhile, suggested that Petty had not done enough research.

First, he said, the county had issued a written opinion stating that Jacob did not have any conflict of interest that would prevent her from voting as an association member when the association board had to make a decision on the health care resolution.

Sansone said the law specifically allows a county supervisor to be an association board member as well.

"I have not seen anything that convinces me that they (association) are on solid legal ground," he said.

Sansone also said that county lawyers believe that because the county "provides" the money that pays for the health benefits through the tax-exempt fund, supervisors had every right to eliminate the fund.

The association does not have the legal right to create or maintain the tax-exempt fund under federal law. However, the county does. The association has historically given the county the association's "excess earnings," to have them given back to the association through the tax-exempt fund. That has allowed the county, association and retirees to pay for the health benefits without paying taxes on them.

Asked if it seemed as though the county and association's disagreement seemed to be the kind of argument only a courtroom battle would resolve, Sansone said, "I don't know.

"But the bottom line," Sansone said, "is that the Board of Supervisors has the discretion to provide funding or not provide funding for this."

Contact staff writer Gig Conaughton at (760) 739-6696 or gconaughton@nctimes.com.