Labor-Backed Plan for "Smoothing" Pension Plans Deemed Illegal

With as many as three different pension reform charter amendments clogging this year's ballot, it's now more obvious than ever that there's no easy way to solve the city's runaway benefits situation. It also turns out there's no smooth way.

One of the highlights of the plan developed by the city's organized labor movement was extended "smoothing." In essence, this lowers the massive yearly contribution the city and its employees pay into its pension system by spreading the losses suffered by the pension system over a longer period of time (to be fair, it would also spread gains over more time — but that's not exactly the situation the city finds itself in these days). Labor had hoped to lengthen the smoothing period from five years to 10; at its most basic, this would have doubled the time the city allots itself to pay down its obligations to the fund.

Whether this is a wise fiscal move is debatable — it's akin to attempting to lose weight by altering the measurement system of the scale. But whether it's legal is less so.

The notion of voter-mandated pension smoothing set off "instinctive alarm bells" for Supervisor Sean Elsbernd. He asked City Attorney Dennis Herrera about it, and, late last month, Herrera's office forwarded Elsbernd a 2005 state attorney general's opinion. In a remarkably prescient precedent, California's top attorney opined that, no, the city charter cannot be used to make detailed policy for a city's retirement system. That's the job of the retirement board. Elsbernd sits on that body as well, and he did not seem eager to use an accounting trick to alleviate the city's pension obligation. "San Diego's [retirement] trustees made some actuarial changes and did some chicanery to benefit the city's general fund instead of the pension fund — and they're the ones who are civilly liable now," he says.

The pension proposals put forth by labor and Mayor Ed Lee will likely be hashed out by the Board of Supervisors until late summer. But the smoothing proposition, having been declared illegal by the city attorney, cannot be brought before the board at all.

Smoothing's rough road was an opportunity for a chuckle by pension crusader Jeff Adachi. The public defender — now the Lord Voldemort of organized labor — unearthed the AG's ruling independently. He notes that, absent the possibility of smoothing, labor's estimation its plan will save the city $100 million is due for some smoothing of its own.