Supervisors to consider pension board's counterproposal

By: GIG CONAUGHTON - Staff Writer | Monday, May 21, 2007 9:07 PM PDT ∞

SAN DIEGO -- With the clock ticking on a June 30 ultimatum that could kill off all county retiree health benefits, county supervisors have decided to entertain a counterproposal from their independent retirement board that would continue benefits the county wants to cut.

County officials said Monday that supervisors would debate the association's plan on June 12 or June 19, a debate that could lead to a compromise agreement just weeks ahead of the county's deadline.

Supervisors and San Diego County Employees Retirement Association directors have been at odds since supervisors passed an ultimatum in December telling the association it must cut health benefits to roughly 17,000 current and future retirees by June 30 -- or the county would cut all retiree health benefits.

Retirement association directors approved a counterproposal May 3 in the hope supervisors would listen, even though they were not legally compelled to consider it.

Brian White, executive director of the retirement association, could not be reached Monday. White said last week that he had sent a letter to the county asking that it put the proposal on the supervisors' agenda.

John Sansone, the county's top lawyer, said there were provisions in the retirement association's proposal that supervisors were likely to look upon favorably -- including guarantees that the county's pension fund debt would be reduced and the county would not bear the accounting burden for the cost of most health benefits.

Supervisors said in December that the long-granted but never-guaranteed health benefits were a "ticking time bomb." The increasing annual costs of the health benefits threatened the fiscal health of the $8 billion pension fund, they said.

The health benefits are also a threat to the county's fiscal health, supervisors said, because of an accounting change that would require the county to report the health benefit-costs for the first time as part of the county's pension debt.

County leaders say the change would push the county's reported pension debt from $1.23 billion to roughly $1.8 billion. That, they said, could hurt the county's bond ratings and make taxpayers pay more in interest when the county builds projects.

So, in December, led by Supervisors Dianne Jacob and Pam Slater-Price, the board of supervisors approved their own plan and demanded that the retirement association also approve it.

The county's plan would slash health benefits for 17,000-plus current and future retirees while continuing to provide benefits to about 7,000 older, poorer retirees.

Supervisors also said if the retirement association did not adopt the county plan by June 30, the county would essentially kill all retiree health benefits by eliminating a tax-free fund through which the benefits are paid.

Tensions between the county and association rose. And angry retirees called upon Jacob, who is both a supervisor and retirement board member, to step down from the association.

However, on May 3, retirement association board members passed their own counterproposal.

They said the plan would make retirees happy because it would continue health benefits for everyone.

But, they said, it would also make supervisors happy because it would guarantee that the $8 billion pension fund would remain stable and remove the county's accounting responsibility for the 17,000-plus pensioners.

Specifically, the retirement association's plan promised that it would not use any "excess earnings" to pay for retiree health benefits until the county's debt on the pension fund -- now at about 15 percent -- was 10 percent or less. that means until the pension fund is 90 percent funded, 100 percent of the "excess investment earnings" -- anything over the association's 8.25 percent investment-earning goal -- would go to pay off the county's pension debt. Currently, the pension board has the discretion to use excess earnings as it sees fit.

In addition, the retirement association's plan would stop using the tax-free fund to pay the health benefits of the 17,000-plus beneficiaries that the county proposed cutting off. Instead, the association would pay for those benefits as a taxed benefit on its own. The result, association officials said, would be that the county would not have to report those benefits in its pension-fund debt.

The plan has proved to be promising enough to entice supervisors to debate it before the June 30 ultimatum goes into effect.

However, it remains to be seen if it is enticing enough to prompt supervisors to adopt it and kill off their December ultimatum. They may still opt to cut the health benefits to the 17,000 plus beneficiaries, rather than approve a plan that continues them, but hides them from accounting reports.

A week ago, when county supervisors accepted a proposed $4.68 billion 2007-08 budget, county Chief Administrative Officer Walt Ekard called the "non-vested" pension health benefits a "risk" to the county's financial stability.

"We all know that these optional benefits have created a financial risk that threatens our ability both to maintain services and continue to increase the salaries of our employees," Ekard said.

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