By John Woolfolk
Updated: 08/27/2009 10:14:00 PM PDT
City retirees and unionized workers blasted a proposal to restructure the boards overseeing San Jose's employee pension systems in meetings Wednesday and Thursday that reflected deep-seated distrust of top officials, who say independent expertise is needed to protect benefits and reduce costs to taxpayers.
"This is a sham," said retired police officer Paul Salerno, who echoed concerns of many retirees and union leaders, who suspected a move by city management to control their pensions. "It does appear to be a power grab." Pension fund oversight is a top concern at City Hall as investment losses in the recent market crash are projected to require a $50 million infusion from the city's operating fund in the next budget year to ensure enough money for the taxpayer-guaranteed benefits, worsening an eight-year run of red ink that has led to layoffs and service reductions.
The city's two pension funds, one for police officers and firefighters, and another serving the rest of the city work force, total $3.2 billion in assets after losing more than $1 billion in the recent market crash. They serve 11,600 employees, retirees and surviving beneficiaries and are each governed by boards of seven trustees that include two City Council members, two employees and a retiree. The council approves all trustees.
A proposal by the Canadian consulting firm Cortex Applied Research calls for a new team to manage the fund. It suggests replacing the City Council members and two other trustees with four council-appointed delegates who do not work for or do business with the city and who have experience administering pension plans or similar assets.
That could include senior executives of banks or insurance companies, auditors, accountants, actuaries or professors in financial fields. Employees would continue to have two representatives and retirees one member on each board, and would gain the right to appoint them directly.
While current trustees are either uncompensated or receive a small stipend, Cortex suggests the funds would have to pay outside experts about $40,000 a year each to serve on the boards.
Cortex said the proposed structure would provide expertise needed to manage a modern pension fund, where investments no longer are limited to U.S. Treasury bills or other safe but low-yield securities.
And it would establish independent board majorities focused on ensuring and providing benefits to replace governance that Cortex found rife with conflicts of interest.
The current structure, Cortex noted, tempts trustees to seek investments with greater but riskier returns to support additional benefits and justify lower city and worker annual payments into the fund, knowing that taxpayers are on the hook to make up for any losses.
Cortex said that while San Jose's pension boards are not unusual for municipal plans, the proposed structure is similar to that used in well-regarded systems, including private-sector multi-employer funds such as the United Mine Workers of America fund and endowments for universities such as Yale. The City Council is expected to consider the proposal later this year.
But retirees and workers ridiculed the notion that their money would be safer in the hands of bank and insurance executives whose risk-taking led to the recent market meltdown, and said they don't want their retirement funds paying their salaries either. They also noted that the funds Cortex held up as models also lost a bundle in the market crash, including the Yale endowment, whose 25-percent losses in the recent crash roughly mirrored the drop in San Jose.
The proposal didn't get a much better reception from the few regular folks who showed up. Jerry Mungai, who retired from a technology company, said the larger issue is that the city continues to squeeze taxpayers to pay for costly government worker pensions that are more generous than the Social Security and 401(k) plans offered to private-sector employees. "We're just rearranging the deck chairs on the Titanic," Mungai said. "It should be a defined-contribution plan where the employees are responsible for their pension progress rather than the taxpayer picking up the slack."