Lawsuit: a test of pension trustee protection?

Shawn Terris, a former state president of a county retirement systems association, has filed a lawsuit against Santa Barbara County, contending she was laid off because of her work as a pension trustee and other issues.

She said the suit is the first test of protections for retirement board members under a little-known initiative approved in 1992 by voters, Proposition 162, which gave sweeping new powers to public pension boards.

The stock market crash last fall punched a hole in retirement funds, creating tension between county pension board members who must order higher annual contributions to replenish losses and county officials who must make the payments.


Shawn Terris

Contribution rates are not mentioned in the lawsuit filed by Terris. But Santa Barbara supervisors hired their own actuary this year as an independent check on the work of the retirement board’s actuary.

The layoff of Terris in September came as the State Association of County Retirement Systems, of which she was formerly president, sent a letter to county officials throughout California.

“It has come to our attention that some board trustees may be experiencing difficulties in carrying out their fiduciary responsibilities as a trustee, as well as an employee of the county,” wrote Robert Palmer, SACRS interim executive director.

The association represents 20 county retirement systems often called the “’37 act” systems because they operate under a law enacted in 1937. The systems have roughly $90 billion in assets and 400,000 active and retired members.

A typical county retirement system has a board with nine voting members — four appointed by the supervisors (one of which can be a supervisor), the county treasurer, three elected by active employees, and one elected by retired employees.

Palmer’s letter cited a state government code that says if a retirement board member is an employee of a county or district, “their board duties shall normally take precedence over any other duties.”

He also cited two sections placed in the state constitution by Proposition 162 that give retirement boards sole control of the system and its assets and make providing benefits to members the top priority, ahead of minimizing employer contributions

The Terris lawsuit mentions the government code and the two Proposition 162 sections. But it’s only one of 10 causes for action, perhaps raising a question about how strong the test of Proposition 162 will be.

The lawsuit said there were violations of free speech and political action rights, a breach of a contract, defamation and sexual discrimination. Terris is a lesbian who was trying to organize a labor union among county managers.

Nevertheless, she said via e-mail, “the outcome of this lawsuit can have a major impact on public retirement boards in California” if public agencies are allowed to violate board protections without consequences.

Terris said the “bottom line” is that the retirement board trustees and the counties or other sponsors of retirement plans “have different mandates and goals.” She gave examples of why trustees might be harassed and threatened with retaliation:

“(1) The employee/trustee did not vote the way their employer wanted them to vote.
“(2) The employee/trustee dared to speak up and the plan sponsor did not like that.
“(3) The employee/trustee educated and informed their constituents, some of whom are members of unions (and plan sponsors negotiate salaries and benefits with unions).”

Palmer said via e-mail that SACRS had heard from “various elected trustees,” apparently not just Terris, that there was “some difficulty in performing their trustee duties while also being employees of the plan’s sponsor.”

The conflict Palmer mentioned was splitting time between work as a trustee and the regular job. He said employers sometimes object if they are not kept informed about trustee work or too many hours are spent away from the regular job.

“There is a balancing act here,” said Palmer. “But generally if there are good communications and respect for each other’s responsibilities, there is no problem. The SACRS memo was sent as a reminder to both the employer and trustee of the balance.”

Terris has a long history of clashes with her bosses at Santa Barbara County. She said it began a decade ago when she was elected to the board of the Santa Barbara County Employees Retirement System.

Her campaign slogan was “Shouldn’t You Know?” Once in office, Terris said, she began sending members information about rights and benefits that had not been previously publicized.

She said harassment and retaliation for her work as a trustee led to a “settlement” in 2003. She transferred from the office of chief executive Michael Brown to the health office, but remained on the payroll of the executive office.

In 2006, another “settlement” moved her to the sheriff’s office. Terris said one of her clashes with county officials was over $100 million from an “excess earnings” lawsuit filed decades earlier by retirees.

Terris said she and others wanted the $100 million to remain in a fund for retiree health care. But in the end, she said, the money was used to help the hard-pressed county balance its budget.

In 2007, said Terris, she drew a rebuke and a denial from a county official for publicly revealing that Santa Barbara and Orange county supervisors had asked for a study about switching to the California Public Employees Retirement System.

The giant CalPERS was at the center of the dispute that led to Proposition 162. Former Gov. Pete Wilson took about $2 billion from CalPERS “surplus” funds over two years (later returned by the courts) to help balance the state budget.

Wilson got legislation that shifted the actuary from CalPERS to an independent agency controlled by the Legislature. Actuaries make the long-term forecasts of obligations and revenue that determine pension contribution rates.

Proposition 162, backed by public employee unions, returned the actuary to CalPERS. Prior to the initiative, retirement trustees had given equal weight to providing benefits, minimizing employer contributions and reasonable administration costs.

The initiative narrowly approved by 51 percent of the voters in 1992 made the top priority providing benefits to members. The nonpartisan Legislative Analyst said in the ballot pamphlet that making benefits the highest priority “could result in higher costs to employers.”

During a panel at a SACRS symposium in Sacramento last March, two lawyers repeatedly emphasized that the primary duty of public pension board members is to ensure that the retirement system can pay the benefits promised to members.

“Are you sitting there saying, ‘Oh, how are we going to help the county out?’” said David Muir, chief counsel for the Los Angeles County retirement system. “If that’s the uppermost thing in your mind, you are in trouble.”

Ashley Dunning of Manatt, Phelps & Phillips echoed Muir’s theme that the main job of the board members, “fiduciaries” entrusted with the legal responsibility of overseeing the property of others, is to keep the pension funds solvent.

“It’s not to make sure that everyone in your department keeps a job,” she said.

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Posted 13 Nov 09

3 Responses to “Lawsuit: a test of pension trustee protection?”

  1. Jim P. Says:

    I’m from the midwest and I’m not aware of how pension trustees representing the sponsor are selected in California. Are they appointed? Are they popularly elected?

    I share the concern about the duties of a fiduciary conflicting with the desires of the employer/sponsor. The quote: ‘Are you sitting there saying, ‘Oh, how are we going to help the county out?’” “If that’s the uppermost thing in your mind, you are in trouble.”’ is a terrifying thought. The county legislatures or other governing bodies deserve the best opinion of a qualified, informed, unconflicted pension board of trustees. It is up to the sponsor to ultimately make the political decision on funding issues. Fiduciaries should do the legislators jobs, they should make the soundest financial decisions possible for the pensions funds, regardless of the political firestorm that may result. Trustees making pensions decisions while worrying about the implications for their own jobs can’t serve as effective fiduciaries.

  2. Jim P. Says:

    typo correction–Fiduciaries SHOULD NOT do the legislators’ jobs, they SHOULD make the soundest financial decisions possible for the pensions funds, regardless of the political firestorm that may result. Trustees making pensions decisions while worrying about the implications for their own jobs can’t serve as effective fiduciaries.

  3. N.J. T. Says:

    I hope that this lawsuit helps to reinforce that sometimes the system WILL protect those quixotic trustees who actually put the good of the pensioners ahead of political concerns–in other words, I hope that you protect the trustees who are genuinely protecting the fiduciary interests of those who have elected them.

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