Legal Update: Purchase of Service Credits

MEA attorney Ann Smith is working tirelessly on a number of litigation and negotiation issues affecting MEA-represented employees. As most readers know, we send periodic “E-blasts” from Ann on these issues that alert employees to new information posted on MEA’s website. The article below related to “window period” Purchase of Service Credit issues is an example of the type of information that can be found on our website, so be sure to visit us when you get a chance to keep abreast of the latest from Ann!

“Options” Letters for Active Employees:

As you know from the last letter you received from SDCERS in late February, those of you who are in the “AFFECTED” category regarding purchased service credits have already or will soon receive a letter from SDCERS by certified mail which outlines the “correction” options available to you and the details related to each option. Most of the “Options” letters for active employees have already been sent, while letters for those who are in ACTIVE DROP (whether they entered DROP before or after 11/20/07) and for those who have RETIRED will arrive later.

Meetings at Balboa Park Club

SDCERS’ “Options” letter will also inform you of a series of dates and times for SDCERS-sponsored informational meetings to be held at the Balboa Park Club in mid-to-late April. SDCERS will also explain the arrangements which have been made with the City to allow you two (2) hours of City-paid release time to attend one of these informational sessions after giving advance notice to your supervisor.

Decision-Making Time-Line

Per SDCERS Board Rule 4.90, you will have sixty (60) days after receipt of your “Options” letter to make your selection from the “options” identified – with another thirty (30) day “grace” period being applicable before SDCERS implements Option 1 on those who do not make a timely selection. Before you make any decision, make sure you understand the different tax consequences and interest payment outcomes. SDCERS has a fiduciary duty to make a full disclosure to you. Ask SDCERS to explain these issues to you at these informational meetings. For example:

Tax Consequences:

Option 1 is the rescission of the original affected PSC contract with a full refund of monies you paid plus interest — and a corresponding reduction in your pension service credits. If you select Option 1, you will have the right to make a tax-deferred rollover of both the principal amount and the interest earned into your SPSP account. In contrast, if SDCERS ultimately imposes Option 1 on you because you fail to make any selection, the principal and interest will be refunded to you in a taxable cash payment. Be sure you understand these differing tax consequences.

Interest Calculations:

The SDCERS Board Resolution calls for interest at the assumed rate of return for the system (formerly 8%; currently 7.75%) to be compounded annually or monthly depending on the circumstance. Before you make any selection, be sure you understand how interest will be calculated and what the affect will be if you act (1) within the initial 60-day period; or (2) during the 30-day “grace” period; or (3) onor after the 90th day.

Those Who Entered DROP Before November 20, 2007: Motion For Clarification of Judgment To Be Heard by Judge Nevitt on April 22, 2011

The motion which SDCERS filed to seek a clarification of the judgment to exclude from this PSC “correction” process all those who were “trapped” in DROP as of 11/20/07 is pending before Judge Nevitt in the San Diego County Superior Court and will be heard on April 22, 2011. Since the City voluntarily excluded all those who were already “retired” as of 11/20/07 from the relief it was seeking when it filed its writ of mandate on 11/20/07 — and since the City acknowledges that those who were already in DROP on that date were “trapped” in these irrevocable agreements — SDCERS is asking Judge Nevitt to exclude these employees/retirees under the circumstances.

Those Who Entered DROP After November 20, 2007

SDCERS continues to await an updated letter from Mayor Sanders regarding the City’s position on allowing DROP participants to reform their DROP contracts to establish a different DROP beginning and end date as part of any “correction.” Since the City is also a signatory to each DROP contract, the City’s agreement to the reformation or rescission of any DROP contract is needed.

Litigation???

Discussion is on-going with other unions and their attorneys regarding potential litigation related to these PSC issues. Many of you are familiar with the letters I sent last August and September related to potential legal claims and the grounds for them. We will continue to participate in these discussions and keep you apprised of MEA’s intentions in this regard. However, this is too “public” a forum to offer any further comments at this time. We will update you as new information becomes available.

Best regards to all, Ann M. Smith