US - The US$3.6bn San Diego City Employees' Retirement System' s funding plan did not make "economic or actuarial sense" and was the primary cause of its estimated US$1.7bn pension deficit, a new report has found.
Accounting firm Navigant Consulting made the statement in relation to two earlier agreements, one in 1996 when the city manager allegedly requested the SDCERS board approve contribution rates at lower than the actuarially determined contribution rate, and another in 2002, when the city manager allegedly again asked for changes to the contribution rate that included overriding the provision that required the city to pay a lump sum if the funded ratio dropped below a certain level.
In its report, Navigant Consulting concluded these actions were the primary factors in the underfunding of SDCERS, and said they “decreased the city’s contributions to SDCERS at the same time the city granted more costly retirement benefits to city employees”. The report criticised the the SDCERS board for approving the agreements despite concerns raised by board members, the board’s fiduciary counsel and the system’s actuary.
The Navigant report is the latest development in the San Diego pensions furore, in which city officials and trustees of SDCERS stand accused of violating their fiduciary duty to the pension system.
Among the other key findings in the report, the SDCERS comprehensive annual financial report was said to contain “misleading and/or omitted disclosures” regarding the funding of the system.
It also found the city and SDCERS had relied on surplus undistributed earnings to pay certain ongoing benefits and administrative expenses, which contributed to the underfunding of SDCERS.
On a positive note, the report stated that, although SDCERS was currently underfunded and the funded ratio had been declining, the system still had “sufficient assets to pay benefits due to all current retirees”.
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