RETIREMENT BOARD ELECTION
Police Officer Brian Stansbury is running for the Retirement Board commissioner seat just vacated by retired Captain Al Casciato. Al served with dedication and distinction for over 20 years. His was an active member’s seat; his retirement created a vacancy. The POA, Firefighters Union (local 798), and the Veteran Police Officers’ Association, along with commissioner Joe Driscoll and Al Casciato, have recognized Brian’s professional investment experience and are endorsing him for this Retirement Board seat.
Brian, now in his fifth year as a police officer, is currently assigned to Richmond Station. Prior to his law enforcement career, Brian worked at Lockheed Martin in strategic planning and helped shape a multi-billion dollar investment strategy. Thereafter he was recruited to work at Merrill Lynch, one of the world’s largest investment banking institutions, where he also made investment decisions involving billions of dollars. His investment experience shows that he is more than capable of making critical decisions as a Retirement Board commissioner charged with overseeing our $15 billion trust fund.
Ballots will be mailed to all active and retired members of the Retirement System on August 23, 2012. Ballots must be returned by September 18. Cast your ballot for Brian Stansbury.
STOCKTON FILES FOR BANKRUPTCY
Q. Mike, I recently read that the City of Stockton filed for bankruptcy protection. I didn’t know that a city could do that. I retired from the SFPD in 2005. Does the Stockton bankruptcy have any effect on my City pension? That is, should I be worried that San Francisco may do the same thing?
A. Three California cities – Stockton, San Bernardino, and Mammoth Lakes –in the last three weeks opted to file for bankruptcy protection under Chapter 11 of the Bankruptcy Code. While this is a rare and unusual event, it was the procedure used by Vallejo in 2008 to restructure its debt. Stockton’s bankruptcy filing is the biggest for a U.S. city in terms of both debt load ($700 million) and population (300,000). Stockton will now restructure debt with 19 parties of creditors, including retirees, city workers and bondholders. With its filing, Stockton suspended payments to its bondholders, made significant cuts in its labor contracts, and eliminated the city’s contribution to its retirees’ health care plans. Stockton attributed its decision to seek bankruptcy protection to: falling property tax revenues and a high home foreclosure rate, big spending on a downtown revitalization effort (waterfront development, hockey arena, and a new city hall which has now been repossessed), a 15% unemployment rate, and hefty public-employee pension and health care burdens. Prior to filing for bankruptcy, Stockton had slashed its police and fire departments by 25% and cut pay by as much as 22% for most of its employees. At the time of filing Stockton had an $800 million unfunded liability for pensions and retiree health benefits.
Stockton has said that it will not seek to modify pensions in this bankruptcy proceeding because of the cost of litigation. When Vallejo declared bankruptcy in 2008 it considered restructuring current worker pensions, but did not do so because of push-back from PERS. Vallejo modified pensions for new employees, cut payments to bondholders, and scaled back retiree health benefits.
This is indeed a troubling trend for it shows that there is a diminishing stigma of bankruptcy amongst California’s cities making other such municipal filings more likely. However, you should not be worried that this will happen in San Francisco. Recently passed proposition C (November 2011 election) lessened the city’s contributions to the trust fund by increasing current employees’ contributions, the city has a thriving real estate market, business conditions are not depressed, employment rates are growing, and out city leaders have generally remained fiscally prudent.
Brian Stansbury, our endorsed candidate for the Retirement Board, knows this Stockton problem well. His father recently retired from the Stockton Police Department. Because of the bankruptcy filing, his parents have lost all of their health insurance. Brian has pledged to do his part to prevent this from happening in San Francisco.
CALPERS REPORTS A 1% INVESTMENT RETURN
Q. Mike, when I retired from the SFPD, I had prior service as a San Francisco sheriff and thereby received a small pension from the Public Employees’ Retirement System (CALPERS). Its recently announced investment return for 2011-2012 has me worried. Can my PERS pension be reduced?
A. Your PERS pension is secure. It is protected by the vested pension benefit doctrine long upheld by California courts.
You are correct in stating that the CALPERS reported a 1 per cent return on investments for the 12 months ending June 30, 2012 – falling way short of its annual 7.5% target. (Note: over this same period the Dow Jones Industrial Average rose 3.8%.) With assets of $233 billion it is the U.S.’s largest pension fund. The likely effect of this disappointing return is that the state of California in FY 2013-2014 and contracting cities in FY 2014-2015 will have to contribute more to make up for the investment shortfall.
CALPERS has been quick to note that its 20-year investment return is still 7.7% and that the past year was challenging for everyone. CALPERS is a bell weather for retirement systems, such as the CCSF Retirement System, that confront many of the same challenges. Historically low interest rates, volatile markets and slow economic growth have shaken many public funds’ confidence in their ability to meet investment targets.
CALPERS administers retirement benefits for more than 1.6 million California State, local government, and public school employees, retirees, and their families on behalf of more than 3,000 public employers, and health benefits for more than 1.3 million enrollees. The average CALPERS pension benefit is $2,332 per month. The average benefit for those who retired in the most recent fiscal year that ended June 30, 2011, is $3,065 per month.
SUPPLEMENTAL COLA FOR FY 2012-2013
Q. Mike, I retired on June 30, 2012. I know from reading a recent “Ask Mike” article that I will receive the basic cost of living adjustment for fiscal year 2012-2013. Do you think that I will receive a supplemental COLA for this same period?
A. NO! There are two reasons you will not receive a supplemental COLA in FY 2012 – 2013. First, there is the issue of Proposition C (November 2011) which prohibits the payment of a supplemental COLA from July 1, 2012 onward until the Retirement System’s investment fund is at 100% based on market value. The System’s funding ratio (market value) when last reported upon (July 1, 2011) was 83.9% - this is a long way from the required 100 % requirement. It is my current best estimate that the Retirement System will not reach 100% market value funding until 2017 at the earliest. And therefore, absent successful litigation by the retirees’ organization Protect Our Benefits, no supplemental COLA will likely be paid for the next 5 years.
Secondly, there will be no supplemental COLA for 2012-2013 because there will not be excess funds with which to pay a supplemental COLA. Remember that the Retirement System must earn in excess of 7.66% to pay this cola. As of June 30, 2012, the System’s fiscal-year earnings are estimated to be comparable to PERS – about 1%.
BEST WISHES TO CAPTAIN AL CASCIATO.
Al Casciato retired on June 30th after a distinguished 42+ year career in the San Francisco Police Department. He will be deeply missed by the Department, the Retirement Board, and the Journal – this current issue is one of only a few since December 1976 in which Al’s signature “Around the Department” column does not appear. We all wish Al and his family a prosperous retirement.
Mike Hebel has been the POA’s Welfare Officer since January 1974. He is an attorney and a certified financial planner. He has received awards/recognition as a Northern California “super lawyer” and included amongst “America’s top financial planners.” He represents POA members at the City’s Retirement Board and at the Workers’ Compensation Appeals Board. He also advises on investment matters pertaining to the City’s deferred compensation plan. He is currently a member of the SF Police Credit Union’s Board of Directors. Mike served with the Police Activities League (PAL) as president and long-term Board member. Mike retired from the SFPD in 1994 with the rank of captain after a distinguished 28 year career. He served as the POA’s Secretary and on its Board of
Directors for 19 years. Mike is a frequent and long-time contributor to the POA Journal. If you have a question for Mike, send an e-mail to mike@sfpoa.org or call him at 861-0211.
