San Diegans Against Crime
News Release
FOR IMMEDIATE RELEASE
Contact: Douglas Rose, (858) 694-4232
Michael Groch, (619) 278-8285

STUDY FINDS SCHWARZENGGER PENSION PLAN WILL COST SAN DIEGAN'S HUNDREDS OF MILLIONS OF DOLLARS

After a lengthy examination of Governor Schwarzenegger pension initiative revealed it would likely cost taxpayers tens of millions of dollars more than the current pension plan, the San Diego County Board of Retirement unanimously voted to oppose both the initiative and similar legislation. During its meeting the Board also denounced the elimination of death and disability benefits for public safety and other employees under the Governor's plan. The Board took these actions on March 17, 2005.

The Retirement Board acted after receiving a 16 page analysis by the actuary firm The Segal Company. That analysis detailed both the initial and long term actuarial costs the County of San Diego would suffer due to the Governor's effort to close defined benefit plans to public employees in California.

An increased contribution of $88 million dollars would have to be paid by the County of San Diego starting in fiscal year 2006-2007, as a result of implementing one of two accounting methods approved by accounting authorities. Using the other method would result in additional county payments of $40 million per year starting in fiscal year 2006-2007, but that cost would rise over the following 20 years.

Most importantly, the study found that virtually all the claimed savings in Governor's proposal came as a result of the elimination of death and disability benefits for public employees. Specifically, the Segal report concluded that "there may not be a significant difference between the cost for the current DB plan and the cost of the new DB-DC plan."

As Brian White, CEO of the Retirement Board explained, the costs of death and disability benefits under the current plan was approximately 3.5% of payroll. That number also assumed that the 3.5% contribution was invested along with other plan assets and grew by 8.25% per year.

White said that a search undertaken at his direction by noted consultant Mercer and Associates failed to find any insurance company that offered a lifetime disability benefit for an injured employee and their survivors, as did the current plan. White analyzed the costs of the Governor's plan, assuming one could convince an insurance company to sell such a plan at price equivalent to the cost under the current plan.

He noted the ongoing cost of the current pension plan was 12% of County payroll, and that rate included death and disability benefits. The Governor's plan which eliminates death and disability benefits lowered that cost to 7%. However, adding back in death and disability benefits to the Governor's plan at the current rate showed the savings touted by the Governor disappeared.

The Board also learned of staggering additional costs to the County of San Diego, in addition to the $40-80 million increase in costs detailed above from accounting changes. The Segal Company commented that closing the current plan to new employees would likely result in a more conservative asset allocation for the current plan, and lower investment returns. The analysis found a reduction in return from the current 8.25% to 7.5% would require the County to increase its contribution by 12% of payroll. In dollar terms, based on current payroll would, the County would be forced to pay an additional $117 million per year.

The Board heard public comment about the detrimental affect that the change would have on County recruitment. Noted San Diego prosecutor Jeff Dusek, who successfully prosecuted David Westerfield for the kidnap and murder of Danielle Van Damn, spoke passionately to the Board about the importance of the current retirement system's role in retaining career prosecutors. He said that at several points in his 28 year career he could have left the District Attorney's office to seek more pay in the private sector. The current retirement system, said Dusek, allowed him to make the choice to stay as a prosecutor, and continue to prosecute violent criminals.

Board member David Myers brought many in the audience close to tears as he recounted the recent murder of an Oceanside police officer who left behind a young wife and child. He then commented that had that officer been hired after 2007, under the Governor's plan the widow and child would have been left with only the limited dollars the officer saved in his year and ½ of service.

Finally, Board member and County Supervisor Diane Jacob also spoke against the Governor's plan. She said that the County's plan was well managed, that the increased costs were not tolerable, and concluded that the since the Governor's plan would not save money, "why change?"

A copy of the actuary report can be obtained at http://www.sdddaa.org/. A complete tape of the hearing of the Board of Retirement's March 17, 2005 meeting can be obtained from the San Diego County Employees' Retirement Association.