Actuary: Deals Added $900M in Benefits
Tuesday, Nov. 14, 2006 | The two pension deals being contested by City Attorney Mike Aguirre added nearly $900 million in new benefits to the pension system, a city-hired actuary told a judge Monday.
Actuary Joseph Esuchanko’s estimate could expand the stakes of the case if Aguirre prevails, as the city attorney has until now estimated that his case could knock off between $500 million and $700 million off the city’s current $1.4 billion pension shortfall.
Aguirre called Esuchanko, who was hired to help forecast the city’s mounting pension cost, to the witness stand Monday. Esuchanko presented his estimates for the costs of several benefit enhancements that were bestowed to city workers as part of the pension-funding agreements struck in 1996 and 2002.
The city attorney has tried to demonstrate that the 1996 and 2002 agreements, known as Manager’s Proposals 1 and 2, respectively, have crushed the city’s financial health. He argues that officials violated state conflict-of-interest laws in approving the deals and, therefore, the benefits should be voided.
The pacts allowed the city government relief from its pension bills while enhancing employee benefits.
The pension pacts increased a number of benefits, such as a key factor in the formula that determines a worker’s retirement check. They also allowed certain employees to begin collecting retirement at a younger age. As part of the 1996 plan, the city also created a number of extra benefits that have since been eliminated for new hires.
In addition to assigning a value to the benefits, Esuchanko said he calculated the amount that certain retirement trustees allegedly gained from the deals Aguirre is challenging.
According to Esuchanko’s estimate:
Former Assistant Auditor Terri Webster, who was a trustee in 1996 and 2002, gained a $529,775 in total future pension pay from the deals – known as Manager’s Proposals 1 and 2.
Firefighters union president Ron Saathoff, who was a trustee both years, gained $451,961 in future retirement pay..
Management analyst Sharon Wilkinson, who was a trustee both years, gained $430,718 in future pension income.
Fingerprint examiner John Torres, who was a trustee both years, gained a total of $312,526 in future pension income from those deals.
Former City Treasurer Mary Vattimo, a trustee in 2002, gained $107,385 in future pension pay from Manager’s Proposal 2.
Former Human Resources Director Cathy Lexin, a trustee in 2002, gained $96,540 in future pension pay from Manager’s Proposal 2.
The six former retirement trustees are not defendants in the civil lawsuit, as Aguirre dropped their names from the litigation in June.
All six individuals, however, are scheduled to stand trial in early 2007 on criminal conflict-of-interest charges filed by the District Attorney’s Office for their alleged roles in Manager’s Proposal 2. In addition, Saathoff, Webster, Lexin, former retirement Administrator Larry Grissom and former pension lawyer Lori Chapin face federal corruption charges in connection with the 2002 deal.
Prosecutors in both cases argue the officials used their positions for personal gain.
Attorneys for the employee groups, including the city’s labor unions, bristled at Esuhanko’s estimates, questioning their relevance to opening phase of the trial. In the first stage, attorneys for the employees are trying to prove that legal obstacles, such as the constitutional protections for pensions and past court cases involving the city, prevent the court from setting aside retirement benefits.
“There’s no correlation with how this fits into the legal issues,” said Municipal Employees Association attorney Ann Smith in an interview after Monday’s hearing.
Aguirre said the purpose of the estimates was to help the court craft a remedy, which was one of the issues the judge wanted to address in the trial’s initial phase.
Joel Klevens, the attorney for City Firefighters Local 145, challenged Esuchanko’s credibility. When figuring the cost of one benefit program – known as deferred retirement option plan, or DROP – Esuchanko increased his original cost estimate from $36 million to $192 million.
The actuary said he committed an error in the first, less-expensive estimate. When asked by Klevens if he could compare the two sets of calculations, Esuchanko said he did not save the spreadsheet that included the numbers for the first estimate.
Lawyers for the employees did not finish their cross-examination of Esuchanko before the day’s end.
The attorneys had appeared to convince Superior Court Judge Jeffrey Barton that about $40 million was the most the city could challenge in the case because a 2000 legal settlement left the 1996 deal untouchable. The judge has since backed off that provisional ruling.