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Update Message from Ann M. Smith re Prop B-Related Meet and Confer

Author: MEA Staff | Date published: 10/13/2021

Dear MEA Members:

For those of you hired between July 19, 2012 and July 10, 2021, who were excluded from the City’s defined benefit pension plan because of the Proposition B charter amendments, you are waiting for news of how and when the Court-approved “make whole” remedy will be implemented now that the courts have declared Prop B invalid after ten years of litigation.  For many, you are waiting to be enrolled in the City’s defined benefit pension plan in order to have the opportunity for a guaranteed lifetime monthly benefit with annual cost of living adjustments.  In fact, the promise of a more secure retirement is one of the key factors influencing a decision to pursue or continue a career in public service.

Brief Refresher  [Skip if you’d like!]

MEA spent from January 2012 through January 2021 in litigation before the Public Employment Relations Board (PERB) and the courts – including the California Supreme Court — to achieve a final determination that the City violated the State’s collective bargaining law when former Mayor Jerry Sanders crafted and led a “citizen’s initiative” – with the express approval of then-City Attorney Jan Goldsmith — to eliminate defined benefit pensions for new hires (except sworn police officers) by charter amendment and to use the initiative process to avoid the obligation to bargain with City’s Unions.  Three published appellate court decisions resulted from this protracted litigation effort.

The purpose of this extraordinary litigation effort – and MEA’s steadfast commitment to achieve justice – was twofold: (1) enforce important collective bargaining rights belonging to all public employees throughout the state, including City of San Diego employees, because those rights were trampled by the City acting through Mayor Sanders and City Attorney Jan Goldsmith; and (2) restore all affected City employees to the position they would have been in before the City violated the law, i.e., participation in the 2009 General Member Plan administered by SDCERS.

However,  despite three victories before the appellate courts, until the Unions achieved a court-ordered Invalidation Judgment, the City would still “benefit” from its violation of the law by continuing the Prop B charter amendments in effect and thus excluding employees from the defined benefit pension plan forever.  And, any final determination of how to apply PERB’s court-approved “make-whole” remedy was also hampered by the fact that the defined benefit pension plan remained closed to employees under the controlling Charter provisions and would always be closed to employees until and unless a court declared the Prop B amendments to be invalid.

The Unions pushed on and, with the City’s support (after years of opposition), secured a grant of “leave to sue” by the State Attorney General – and ultimately conducted a trial on the validity of the Prop B charter amendments before the San Diego County Superior Court.  Following trial, the Hon. Richard E. L. Strauss ruled that the Prop B Charter amendments are invalid because, by failing and refusing to bargain, the City had violated State law in the process leading to placement of the proposed amendments on the ballot for voter approval.  The Court entered an Invalidation Judgment on February 5, 2021; the official ballot proponents — who had defended the validity of the Proposition B citizens’ initiative since 2012 – declined to appeal and the Judgment became final.

Compliance Process

The process we are in now with the City is called “compliance” which is directed at implementing the Court-approved remedial orders issued by the Public Employment Relations Board (PERB) and the Superior Court’s Invalidation Judgment.  There will be three steps to this Compliance Process: (1) legislative action to re-open the defined benefit pension plan to new hires; (2) enrolling active Prop B-affected employees in the defined benefit pension plan and making them whole for their losses during the period of exclusion; and (3) addressing the elements of the make whole remedy for those employees who were excluded from the defined benefit pension plan while employed but who have now separated from City service.

1st Step Was Taken When the Defined Benefit Pension Plan Was Re-Opened To New Hires As of July 10, 2021

As reported previously, the first step in implementing PERB’s Make Whole Remedial Order and the Superior Court’s Invalidation Judgment was the necessary legislative action to re-open the defined benefit pension plan to new hires.  After the City fulfilled its duty to meet and confer regarding the proposed Ordinances to accomplish this, the City Council approved them and the defined benefit pension plan (the 2009 General Member Plan) was re-opened.

Every new hire into a benefitted MEA-represented job opening on and after July 10, 2021, is automatically being enrolled in this defined benefit plan and is not participating in the substitute SPSP-H defined contribution plan.

2nd Step Affecting Active Employees Hired Between 7/19/12 and 7/10/21

This phase of the compliance process has been actively underway since early June.  In a series of meetings, MEA and the City (acting through the Mayor as Charter-designated CEO and Chief Labor Negotiator and the Mayor’s designated Negotiating Team) have made significant progress in identifying a myriad of complexities which must be addressed and resolved to achieve the City’s full compliance with the controlling Remedial Order/Invalidation Judgment – and to do so in a manner fully consistent with PERB’s body of “make-whole” remedial law.

Ideas and supporting rationales have been exchanged and some common ground has emerged even as disagreements continue to be discussed and evaluated by both sides.  It is important to note that there are no signed agreements yet and that the effort being made is to reach a tentative agreement which both sides can and do support and which, on that basis, the Mayor can bring to the City Council for its consideration and potential legislative action to implement.  It should also be emphasized that MEA is acting on behalf of all affected employees to secure the City’s full compliance with PERB’s Remedial Order and the Court’s Invalidation Judgment; however, MEA is not negotiating a new labor agreement and, therefore, the process of having the MEA membership vote to ratify the results does not apply.

What Is MEA Trying to Achieve In This Process

MEA’s efforts are directed at getting affected employees every available benefit of this litigation success by:

  1. assuring that affected employees are able to enroll in the City’s defined benefit pension plan – just as would have automatically occurred at the time of hire had the unlawful Prop B not been added to the City Charter;
  2. guaranteeing that all missed years of creditable service are restored now by a “purchase” of those years in the amount determined by SDCERS’ actuary Cheiron in order to put affected employees in the same position they would have been in when originally hired;
  3. establishing the amount the employee would have paid into SDCERS each payday for their share of the normal cost of having a defined benefit pension;
  4. establishing the amount the City would have paid into SDCERS for its share of the normal cost of providing a defined benefit pension for this employee;
  5. establishing the amount of the interest now accrued on both the employee’s and the City’s missed contributions to SDCERS;
  6. establishing the amount of any unfunded accrued liability associated with these missed years of creditable service being purchased which is the sole responsibility of the City to fund;
  7. determining what offsets or credits the City is entitled to take against the contributions made by the employee and by the City to the replacement SPSP-H defined contribution plan and the investment earnings made on those contributions;
  8. requiring the City to pay the full purchase cost for these missed years of creditable service offset (as the law allows) by certain amounts accumulated in the employee’s SPSP-H account which was the benefit provided in place of a defined benefit pension;
  9. preventing the City from taking more in offsets or credits against the SPSP-H account than is allowed under applicable “mitigation” legal principles;
  10. establishing the process for an employee to transfer the specified amounts from their SPSP-H account to SDCERS;
  11. guaranteeing that 100% of all SPSP-H funds transferred to SDCERS — whether the transfer is from the employee’s contribution account or the City’s contribution account — will remain FULLY VESTED and 100% available to the employee on separation from employment if the employee requests withdrawal of their contributions (with interest added); and,
  12. providing every affected employee with paid release time to allow the employee to become fully informed about the process, the new defined benefit, the total cost of purchasing the missed service credit, who is paying for what portion of this cost, and how these amounts were calculated.

What Common Ground Has Emerged On Which MEA and the City Tentatively Agree

Principle #1:  There will be a one-time irrevocable option to reject enrollment in the defined benefit pension plan and remain in SPSP-H on amended Plan terms. 

For the vast majority of MEA-represented employees, the opportunity to accept the restoration of the status quo ante and the associated make whole remedy we have achieved here is a huge and welcome relief.  There are some, however, who have individual reasons (on a fully informed basis) to reject this outcome and opt instead to stay in the SPSP-H Plan.  MEA supports — and the City agrees – that this opportunity will be made available.  For an employee in this category, there will be an opportunity to sign a waiver of the make whole/restoration remedy and opt instead, on an irrevocable basis, to continue their participation in the SPSP-H Plan.  However, certain amendments must and will be made to the current SPSP-H Plan in order to comply with tax code requirements – notably, the employee’s mandatory contribution rate will be tied to what the percentage contribution rate and amount of total contributions would be each payday had the employee enrolled in the City’s defined benefit pension plan instead.  In most instances, this will be a contribution rate in excess of 9.2% but the City’s contribution percentage will remain at 9.2%, whether 9.2% is more or less than the percentage the employee must contribute.  For employees who choose this option, there also will be no death or disability benefit going forward as those benefits will only be available under the City’s defined benefit pension system.  This outcome was recognized when the interim plan was implemented during the pendency of the invalidation litigation.

Principal #2: Once the Employee’s SPSP-H account is valued against the agreed-upon make whole formula, the City — not the employee – will make up any shortfall in the amount needed to complete the purchase of all missed years of creditable service.

Once a defined purchase price has been determined by SDCERS’ actuary and the City – with MEA’s careful scrutiny — and all appropriate “credits” are also determined and approved, any excess in the employee’s SPSP-H account will be retained by the employee.  If there is a shortfall in the amount needed to make the full purchase because the employee’s SPSP-H account does not have sufficient funds, the City will make-up the difference.       

Principal #3: Every affected active employee will be given the opportunity to be restored to the status quo ante – that is, to the position that employee would have been in had they not been excluded from the defined benefit pension plan by operation of the now-invalid Prop B charter amendments.  Certain SPSP-H funds will be tapped as part of this purchase because PERB’s court-approved remedial orders allow it and make-whole legal principles underpin it.  However, no employee will be required to come out of pocket – beyond the funds available in the replacement SPSP-H plan – in order to achieve the full purchase of all missed years of creditable service and thus be in the position now that they would have been in had Prop B never occurred.  No employee will lose the 100% vested status of their SPSP-H funds when those funds are transferred to SDCERS as part of the agreed-upon make whole remedial formula – whether those funds were in the Employee or the Employer Contribution Account.  This means that an employee who enrolls in SDCERS and makes the purchase of all missed years of service creditable using SPSP-H funds will still “own” every dollar and will have the right to withdraw or roll these funds over to a retirement savings account on separation from City employment – with interest at the SDCERS assumed rate of return added to the balance.  The employee may also leave these funds on deposit with SDCERS in order to achieve reciprocity with another pubic sector employer or to continue to earn a defined benefit pension on future return to employment with the City.

Principal #4: There will be a sufficient information/education period before any “action” period begins so that employees have the opportunity to understand what they are doing and why by giving them access to the trained professionals at SDCERS and in the City who will have the correct answers to their questions.

Once a tentative agreement is finally reached and approved by the City Council, a 60-day “information/education” period will begin while the City Council conducts the required first and second readings of the new Ordinances followed by the mandatory 30-day “referendum” waiting period before the Ordinances take effect.  At the end of this 60-day period, SDCERS’ actuary Cheiron will have calculated the actual purchase cost associated with each employee’s missed years of creditable service and the agreed-upon make whole formula will then be applied to these calculations to be presented and explained to the employee for action.

Timing: When Will This Compliance Process End With An Agreement (If It Does!)

As noted, we have made substantial progress in our many meetings with the City since June and we reasonably expect that our next meetings are likely to lead to a resolution of all remaining issues by the end of November.  If this occurs – which we cannot, of course, guarantee – Council action in closed session would be expected in early December and the actual Ordinances thereafter ready for first and second readings in January.  This is when the 60-day information and education period would then begin – in theory, during January and February 2022 – followed by the “action period” for making the purchase and availing oneself of the full make whole remedy or instead signing an irrevocable election to reject the make whole remedy and stay in the SPSP-H Plan as amended.

Getting Yourself Started On Information/Education

There is every reason to get an early start on the self-education associated with this long-awaited opportunity.  Don’t wait  . . . please take a look soon at the information available on the SDCERS website (www.sdcers.org ) regarding the actual 2009 General Member Plan and other related general information explaining how reciprocity works with other public sector employers and how the death and disability components of the defined benefit plan work.

Here are the hyperlinks for your convenience: