The 42,000 members of the San Bernardino County Employees’ Retirement Association were provided with two disheartening disclosures at the association’s board meeting held on Thursday, August 6. Most shocking was that in the last year, the association suffered a $272.43 million loss on its investments.
Moreover, the membership was informed, as a result of the so-called Alameda decision, members will no longer be able to include standby pay, on-call pay, and call-back pay or other add-ons with their salaries to calculate their pension allotments. Those who were receiving pensions since 2013 based on incorporating such add-ons into their salary totals in all likelihood will need to make refunds to the retirement system, although that decision has yet to be officially made.
The San Bernardino County Employees’ Retirement System manages the monetary pool that provides the pensions for retired San Bernardino County employees, as well as for the retirees from 15 other public agencies, including the Barstow Fire Protection District, the Big Bear Fire Authority, the California Electronic Recording Transaction Network Authority, the California State Association of Counties, the City of Big Bear Lake, the City of Chino Hills, the Crestline Sanitation District, the Department of Water & Power of the City of Big Bear Lake, the Hesperia Recreation and Park District, the Law Library for San Bernardino County, the San Bernardino County Local Agency Formation Commission, the Mojave Desert Air Quality Management District, the San Bernardino County Transportation Authority, the South Coast Air Quality Management District, the Superior Court of California, as well as the staff for the San Bernardino County Employees’ Retirement Association itself.
Known by the acronym SBCERA, the San Bernardino County Employees’ Retirement Association and those associated with it have long touted it as one that is more competently managed and achieving greater investment returns than the pension system for the State of California and an overwhelming number of the municipal and county governmental entities in the state, the California Public Employees Retirement System.
Recent developments and challenges, however, have resulted in SBCERA not only failing to meet its investment return goals, but actually experiencing losses that have caused the $10.46 billion in total assets it had last year to attrite to $10,102,541,405.
What’s more, the San Bernardino County Employees’ Retirement Association in the same period paid its investment managers $109,823,343.
As a consequence, one member grumbled, “SBCERA paid investment managers 1.29% to lose 3.2%. We also paid our investment staff six figure salaries plus bonuses. The board oversaw and approved all that.”
In 2012, at the instigation of then-California Governor Jerry Brown, the California legislature passed the Public Employees’ Pension Reform Act, which eliminated pension spiking in California’s public retirement systems. Pension spiking would be effectuated by government employees working extra shifts and receiving overtime pay, working odd hours at higher pay and/or cashing out out accumulated vacation, sick or family leave and/or training, education, clothing, vehicle, phone or computer allowances in the last year of their employment to inflate their final compensation to increase their pension allotment.
The Alameda County Deputy Sheriff’s Association filed a lawsuit in 2012 over the then-proposed and later-initiated pension system reforms in an effort to preserve those types of pay and benefits as pensionable. A public employee union in Merced County filed a similar lawsuit, making it one of the plaintiffs in the case.
In San Bernardino County, the San Bernardino County Employees’ Retirement Association did not abide by the terms of the Public Employees’ Pension Reform Act pertaining to no longer using add-on pay to increase the quantification of final year salary in determining an employee’s pension level, on the expectation the Alameda County/Merced County case would be adjudicated in the unions’ favor.
On July 30, the California Supreme Court ruled against the public employee unions in the Alameda case.
The Public Employees’ Pension Reform Act created a two-tier public employee pension system standard, one of which was applicable for then-existing public employees, which because of its generous terms was threatening to eventually bankrupt the state’s various public employee retirement systems, and a far less generous pension system standard for those hired after December 31, 2012. The Alameda County sheriff’s deputies argued that they were entitled to engage in pension spiking because they were hired prior to January 1, 2013. The Alameda County and Merced County plaintiffs cited the “California Rule,” a legal precedent dating to the 1950s that has protected public pensions from reductions unless new and equal benefits were offered to public employees to offset the benefits removed.
Chief Justice Tani Gorre Cantil-Sakauye in the court’s ruling found that using the standard of the Public Employees’ Pension Reform Act in closing pension spiking loopholes previously enjoyed by public employees hired prior to January 1, 2013 was not unconstitutional, and that the goal of closing such loopholes was a “proper objective” of the legislature. “It would defeat this proper objective to interpret the California Rule to require county pension plans either to maintain these loopholes for existing employees or to provide comparable new pension benefits that would perpetuate the unwarranted advantages provided by these loopholes,” Cantil-Sakauye wrote in the court’s decision.
During Thursday’s meeting, held remotely using the Zoom application, several San Bernardino County Employees’ Retirement Association members advocated against the association complying with the Alameda decision direction.
Phillip Hubbard, a SBCERA member, said that elements contained in the benefit package given to association members in 1982 did not constitute pension spiking.
San Bernardino County Employees’ Retirement Association member William Richards said that the benefits impacted by the Alameda decision were ones that were used as “a recruitment tool” to convince some SBCERA members to accept positions, and that it is unfair to take those benefits away retroactively.
SBCERA member Mark Henninger said that current employees and retirees “had a lot invested in retirement, and that is now being pulled out from under us.”
Grant Ward, the legal representative for the Sheriff’s Employees Benefit Association, said that the County of San Bernardino and SBCERA were contractually bound to keep the pension spiking provisions in the sheriff’s deputies’ pension calculations intact because during contract talks between the sheriff’s union and the county, “We negotiated to make standby and overtime pay pensionable.”
Former Assistant District Attorney Gary Roth questioned if “[the] Alameda [decision] is applicable to already retired employees.”
Fred Miassian, a San Bernardino County Employees’ Retirement Association member, said “Health benefits are not a one-time spike. You are putting us in a position where we have no recourse.”
Dennis Hayes, counsel for Teamsters Local 1932, which represents the bulk of San Bernardino County’s non-safety employees, told the board that the Supreme Court’s decision will not be final for thirty days.
“SBCERA should not act at all until the Alameda decision is final,” Hayes said.
The Bernardino County Employees’ Retirement Association Board, however, authorized a statement that “The court said that the retirement systems must follow the statute and do not have the authority to disobey the statute once it became law. The SBCERA Board of Retirement adopted a resolution that requires SBCERA to immediately comply with the Alameda case and the Public Employees’ Pension Reform Act changes to compensation earnable.”
-Mark Gutglueck