San Bernardino plan cuts pensions of 23 retirees

San Bernardino’s plan to exit bankruptcy, possibly next year, cuts the pensions of 23 retired police officers who receive an unusual supplement to their regular CalPERS pension.

The supplement paid through a private-sector firm, the Public Agency Retirement System, boosts pensions to the same amount now common among police and firefighters, a standard set by the Highway Patrol in a CalPERS-sponsored bill, SB 400 in 1999.

San Bernardino provided the PARS supplement from 2004 to 2008, when the 23 police officers retired, as a lower-cost way to be competitive in the job market before adopting the more expensive CalPERS formula that critics say is “unsustainable.”

“PARS plan retirees will be the only retired employees in the state of California to have their retirement compensation reduced through bankruptcy proceeding,” a member of the PARS retiree subcommittee, Robert Curtis, said in a court filing this month.

Curtis said unfairly reducing pensions up to 12 percent could result in personal bankruptcy, the loss of homes and health coverage, and other hardships. He asked for a city-provided attorney to represent the PARS retirees.

San Bernardino’s plan to exit bankruptcy would reject the PARS contracts, distribute a $1.8 million trust fund to the 23 retirees, and make no more payments to the supplement, which is said to be underfunded by about $3 million.

The city thought it had an agreement with the PARS retirees last month. But in a court filing last week, the city suggested the emergence of opposition since then could result in even less generous treatment of the PARS retirees.

New public pension supplements, like the one given the 23 San Bernardino police officers, are now banned under a pension reform pushed through Legislature by Gov. Brown three years ago.

San Bernardino can argue that phasing out the PARS supplement leaves the 23 retirees with the pension offered when they were hired, like other officers who retired before the supplement began in 2004.

But the same cannot be said of pensions from the California Public Employees Retirement System and other public retirement systems covered by the “California rule,” a series of state court decisions.

Public pensions can go up but not down — even if, as with SB 400, a pension increase is retroactive, immediately creating debt because the increase was not paid for by previous employer-employee contributions.

A San Bernardino disclosure statement filed Nov. 25 said the city had roughly $323 million in CalPERS pension unfunded liabilities when filing for bankruptcy in 2012.

“These unfunded actuarial liabilties were created primarily by the common council’s decisions to approve enhanced pension benefits to city employees in 2001 and 2007,” said the city filing.

Contributing factors, said the filing, were unfunded retroactive pension increases, heavy CalPERS investment losses during the financial crisis, and an increasing number of retirees with larger pensions and fewer active workers to help pay for them.

SBchart

Without cutting pensions, the San Bernardino plan is expected to produce a healthy general fund reserve of 15 percent or more through 2034, according to an update issued by city consultants early this month.

U.S. Bankruptcy Judge Meredith Jury said in October she wanted more discussion of rising pension costs, given the “media perception” that Stockton and Vallejo are in trouble (strongly denied by the city managers) because they failed to cut pensions in bankruptcy.

San Bernardino has deeper problems than the other two cities: a lower average income and weak local economy, years of factional political infighting, and mismanagement that led to a new finance director discovering the city was on the brink of not making payroll.

After an emergency bankruptcy filing in 2012, San Bernardino took the unprecedented step of skipping its payment to CalPERS for most of a fiscal year, running up a debt of $13.5 million and risking termination of its CalPERS contract.

Hoping at first to get aid from CalPERS by stretching out payments, what San Bernardino got was a legal battle and a mediated agreement to repay CalPERS with interest by June 2016, followed by a penalty bringing the total to $18 million.

Regular San Bernardino general fund payments to CalPERS increased from $6 million in fiscal 2000-1 to a projected $22.6 million this fiscal year, said the November city filing.

CalPERS employer rates for San Bernardino police and firefighters were 14 percent of pay in fiscal 2000-1, 39 percent of pay in fiscal 2012-13, and are projected to be 60 percent in fiscal 2019-20.

In other developments, City Manager Alan Parker, who clashed with Mayor Carey Davis, resigned effective Dec. 31. Last week Police Chief Jarrod Berguan was appointed interim manager until Mark Scott, Burbank city manager, takes the post Feb. 8.

Burrtec was selected in November to take over city waste management and retain full-time city employees, part of a strategy to cut costs by contracting for services. The city expects a one-time $5 million payment and annual savings of $2.8 million.

A federal appeals court last week upheld Judge Jury’s ruling that the city charter does not prevent contracting for fire services. Annexation of San Bernardino by the county fire district is expected to yield a $143 parcel tax and lower pension costs, netting $11 million a year.

At a hearing last week, Jury moved on from pensions and asked for an explanation of why the San Bernardino plan only gives some creditors 1 percent of what they are owed and does not raise taxes to pay more debt, the San Bernardino Sun reported.

Voters approved a 1-cent sales tax increase in Vallejo and a ¾-cent sales tax increase in Stockton. The San Bernardino plan would pay only about 1 percent of the amount owed on a $50 million pension obligation bond.

Among the major remaining opponents of the plan are the holder of the unsecured pension bond, EEPK, which is a subsidiary of Commerzbank of Germany, and the insurer of the bond, Ambac.

A request from the San Bernardino bondholders to be treated the same as pensions was rejected by Jury last May, and the ruling is being appealed. Mediation on Nov. 18 and 19 failed to produce a settlement.

Early this month in the Stockton bankruptcy, a federal appeals court rejected an appeal of a 1 percent payment on $30 million in unsecured bonds held by Franklin Templeton, which argued creditors were treated unfairly because pensions are untouched.

Jury predicted last week that the confirmation trial on the San Bernardino plan to exit bankruptcy will begin this spring or summer, the Sun reported. The fourth anniversary of the bankruptcy is Aug. 1.

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Calpensions.com. Posted 28 Dec 15

16 Responses to “San Bernardino plan cuts pensions of 23 retirees”

  1. john m. moore Says:

    Ed says the ruling could not apply to CaLPERS and other government systems subject to the California rule.
    First: The California rule only applies to agencies that have granted vested pension rights. State empliyees and state teachers have vested rights. PERL and CERL agencies may or may not have vested rights(State Bar Seminar on “Vested Pension and OPEB rights-June 2015)depending on the language of the statute or contract that granted the benefit.
    Second. As Judge Klein stated in the Stockton Chaper 9 in bankruptcy, pension benefits may be modified in a Chapter 9. Vesting is not an issue; but the agency must have the integrity to request that pensions be modified.
    Third. Agencies that file a chapter 9 without modifying unsustainable pensions fail to do so based on the corrupt advice of bent agency managers/administrators and agency attorneys. Its more of the funny business thate broke the agency in the first instance. The market value of San Bernadino’s pension deficit exceeds $700M and will continue to grow like topsy after bankruptcy(like Vallejo and Stockton).

  2. Steve Says:

    Pity anybody who would follow the legal advice of John Moore.

    As the California Supreme Court made clear in 2011, all public agency employees in pension systems have a vested right to that pension, either via contract, statute, or even an “implied contract.” Retired Employees Association of Orange County v. County of Orange

    The voters of Pacific Grove took their measure of John Moore when he ran on his anti-pension campaign in 2014. He got walloped, 75%-25%.

    His attempt to get a ballot initiative to roll back pension increases in Pacific Grove was removed from the ballot by a Judge.

    John, stick to the crazies at “unionwatch” who lap up your musings, and leave the serious business of pensions to knowledgeable people.

  3. john m. moore Says:

    I double-checked with Professor Nation’s Pension Tracker. San Bernadino’s unfunded pension liability at market, and including pension bonds was $1.05B as of June 30, 2013. I had under-stated it by $300M. Point? How can city managers and lawyers persuade city councils to commit this form of financial suicide? It makes Bell and Vernon like chump-change.

  4. Ken Churchill Says:

    John is correct about vested rights needing to be granted. Cities and counties may very well have a way RIGHT NOW to negotiate new pension formulas going forward for existing employees during contract negotiations thus negating some of the disastrous effects of the unaffordable retroactive increases starting with SB 400 and spreading throughout the land.

    Or without vested rights they can actually have employees share in the cost. How about 50%/50% for all pension costs including the unfunded liability.

    But instead as John points out government agencies (and the media) continue to repeat the lie that the California Rule applies to every public agency in California. The truth is it does not, and that misconception needs to be changed.

  5. john m. moore Says:

    Steve
    First, I was not a sponsor of any pension initiative.
    Second, Retired Employees of Orange County(2011) confirms the difficulty in proving that a vested right exists, in part because of the presumption that a statute or contract does NOT create a vested right. The Retiree’s in that case, in fact, lost the case.
    Third, I ran for mayor with zero expectation of winning. I ran, foolishly believing that if I showed the press the truth of the city’s financial condition, it would publish it. It would not. I spent less than $250 on the election.
    Fourth, I have never asked people to believe me, but for them to review the EVIDENCE that I set forth and then decide. For example, I cite the State Bar seminar on the creation of vested rights(where the Orange Co case is discussed). Why didn’t you review it before making your inaccurate comment.
    What I do is hard work. It takes hundreds of hours of research. I do it because no one else(like a younger attorney than me-much younger has not invested the effort). I have never run for office to win, and never will. I gain nothing pesonally, but I am so afraid for the future of our children that I push on. Does it bother me that you mock and belittle me? A bit, but mostly I wish that you would work on your facts. The trillion dollar state-wide pension deficit(about eight years of the state budget)is a cancer that has already taken a great toll in the lives of our citizens.

  6. Steve Says:

    Sorry, Kenny Churchill, it’s not a lie. Why don’t you cite a single California court case supporting your point that vested rights need to be granted–you can’t. You may wish that was so, but it isn’t. We’ll wait for you to cite a single California legal case–but we won’t hold our breath.

    (0h–and the dream that you and Chuck Reed had that San Jose would try to challenge vested rights doctrine in their pension lawsuit just went “poof!!”–when San Jose decided to toss out completely Reed’s pension changes, and not appeal any further)

    BTW–love that your candidacy for the Board of Supervisors on your pension platform was as successful as Moore’s Mayoral campaign. LOL!

    You two should stick to congratulating each other on unionwatch, and leave the legal analysis to those who know what they are talking about.

  7. Steve Says:

    “John is correct about vested rights needing to be granted”

    Really, Kenny, really? Care to cite a single case from California that says that? I won’t hold my breath.

    (And you probably had a major sad when the Chuck Reed dream to challenge vested rights in San Jose when the City Council threw out his pension changes, and agreed to dismiss the lawsuit he started challenging same)

    Your as credible on this as John Moore–which is interesting, because your anti-pension candidacy in Sonoma County was as unsuccessful as his Mayoral campaign!

    Why don’t you two stick to cheering for each other on ‘unionwatch”.

  8. Steve Says:

    “Vested rights need to be granted….” And guess what, Kenny, here is how they can be granted.

    – Resolutions
    – Statute/CalPERS contract
    – Municipal/County Codes
    – Charter
    – Personnel Rules and Regulations
    – MOUs and Side Letters
    – Implied Promises

    That pretty much covers every which way that all public employees in a pension system in California have vested rights.

  9. Steve Says:

    John,

    -sorry, you weren’t a “sponsor” but you were a vocal public supporter. As evidenced by your speaking at the City Council meeting on March 12, 2014 where in public session regarding the lawsuit on the initiative the minutes state:

    “PUBLIC COMMENT ON CLOSED SESSION MATTERS
    John Moore stated if the City initially placed the initiative on the ballot funds would havebeen saved.” (unless there is another “John Moore” in Pacific Grove who happens to hold your same views)
    http://www.cityofpacificgrove.org/sites/default/files/city-council/2014/4-2-2014/city-council-4-2-2014-5a-cc-minutes-3-12-14-revised.pdf

    —The Retired Employees of Orange County holds exactly opposite to what you claim. It added yet another way that vested rights could be created–by implied contract based on conduct of the employer. That was the holding of the California Supreme Court. The fact that when the case went back to the Federal Courts they found no conduct that implied a contract in no way detracts from the fact that vested rights can be expressly, or impliedly, created–and is irrelevant to the legal principle that was established.

    –Your run for Mayor put your position on pensions up for a public vote–ie, a referendum on what you believe. You were trampled.

    –“What I do is hard work. It takes hundreds of hours of research.” Well, that only speaks to the quality of your legal work then, because it’s hard to get it as consistently wrong as you do.

    -“I mock and belittle you”. You agitate to take away what people bargained for, what they have earned, what established law and legal principles call for to be paid—and then try to cast yourself as some sort of noble fellow. Cry me a river.

    If exposing how your “legal pontifications” are wrong, and challenging you who have esentially called those who expect those earned benefits a “cancer on society” bothers you, too bad. Go over to anti-public employee echo chamber at “unionwatch” if you want to be unchallenged when you spread incorrect legal principles, call for the end of collective bargaining, portray public employees as a blight on society. You aren’t going to get a free pass here.

  10. john m. moore Says:

    Re your 11;07 comment. All of the sources you list are capable of creating Vested rights. As the Orange County case, the South Pasadena case and others cited in the State Bar seminar indicate, such documents grant “benefits” but rarely vested rights to the benefits. The leading vested rights case was Kern v. City of Long Beach; the Supreme Court found that a charter provision created a vested pension right. So you and I have made progress. You started with the proposition that the Retired of Orange county case gave all employees a vested right. Now you admit that there must be a grant of a vested right in the source document that granted a benefit.
    As to your 12:52 diatribe, it contains no reasonable argument related to the pension crisis, so, no response. BTW, what is your remedy for the trillion dollar(per Prof Nation)pension deficit. Or is he just a jerk too?

  11. tallie Says:

    pensions are a ponzi scheme. former actuary here.

    defined benefit pensions will always fail over time. they should never have been legal because they are ponzi schemes.

    defined benefit plans are not necessary and they encourage people to be irresponsible, to place their future in someone else’s hands.

  12. Steve Says:

    John Moore,

    Let’s replow the ground one more time. Every single public employee currently in a pension system in California is vested. Period, end of story.

    How those employees came to be part of that system and therefore vested may differ—charter, statute, contract, implied–but ultimately doesn’t matter. So, ditch the fantasy land that you and those that believe like you can change the vested rights of current public employees because they didn’t get there the “right way.” And, the dream of Chuck Reed and Amy Monahan to use San Jose as a tool to try to convince the California Supreme Court that their vested rights doctrine was wrongly created failed when the City Council there tossed out Reed’s pension changes.

    It’s sad that a person who has been a lawyer for 40 years doesn’t understand that the Retired Employees of Orange County was a dramatic expansion of how vested rights can be created, not a restriction

    As for my 12:52 AM post-truth hurts, doesn’t it. Spend a few more hours developing elaborate multi-point “solutions” for California and posting them on “unionwatch”—I’m sure the echo chamber will enjoy the fantasy.

  13. john m. moore Says:

    Once again, where is your trillion dollar pension deficit solution? BTW, I agree that Retired Employees of Orange Co stated that it was theoretically possible to have an implied vested right where the document or statute granting the benefit did not. If all employees have vested rights, why would the question of implied vested rights come up?
    BTW, if I poop you off, brace yourself for my next article which will show how any Ca. city or county can file a chapter 9 in bankruptcy, reject its contract with PERS or a CERL board(and leave the systems), reject its contracts with the unions, its bent administrator and lawyer and most importantly reduce pensions to a sustainable level. It won’t make any difference if rights are vested, etc. Any modification must be just and reasonable, which means affordable. Happy New Year.

  14. Tough Love Says:

    Quoting John …….. “Once again, where is your trillion dollar pension deficit solution?”

    He DOESN’T CARE about achieving a “solution” as long as HE gets all “that he was promised” before he meets his maker …. no matter how unnecessary, unjust, unfair to taxpayers, unaffordable, or fraudulently obtained ……… nor how SCREWED he will leave his younger /lower-service Public Sector union “brothers”.

    It’s all driven by self-interest and GREED.

  15. Steve Says:

    John Moore, I’ll be “braced” for giggles and amusement at your next screed on pensions. It’s positively amazing how you even garnered 25% of the vote in Pacific Grove.

  16. john m. moore Says:

    Steve: The attorneys from Liebert Cassidy Whitmore that prepared the state Bar Seminar on “Understanding ‘Vested’ and Other Post-Employment Benefits” are Frances Rogers at 619-481-5900 and Michael Yourli at 559-256-7800. Contact them and explain why their research and conclusions about “vested” rights is in your view incorrect and even funny. When you call the state bar to correct them(too), vested rights is catergorized under “Public Law.” Good Luck.

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