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Update Regarding PSC Issues from Ann M. Smith

Dear ALL:

We all recognize that many of you continue to struggle with the aftermath of this difficult problem related to the service credits you purchased during the 2003 “window period” as a result of the City’s lawsuit and the final decision made by the Fourth District Court of Appeal in June of last year.  We continue to work on these issues and wanted to provide you with a few updates:

The City Opposed Any Clarification of the Judgment Related to Those “Trapped” in DROP As of 11/20/07

As you likely know, when I/MEA appeared before the City Council on these PSC issues back on November 29, 2010, the City Attorney acknowledged that it might be appropriate for SDCERS to seek a clarification of Judge Nevitt’s final judgment to address those employees who were already “trapped” in DROP when the City filed its lawsuit on 11/20/07.  Since the City itself had excluded employees who had already “retired” as of 11/20/07, from the relief being sought, the clarification issue would be whether or not these DROP employees should also be excluded under the circumstances.  After this open session on 11/29/10, the City Attorney confirmed in writing that employees who had signed irrevocable DROP contracts before 11/20/07 were “trapped” in DROP by the time the City filed its lawsuit on 11/20/07 and thus they were unable to do anything about the City’s claim that their purchased service credits may have been underpriced.

Thus, at the City’s urging – and with the City’s encouragement – SDCERS’ outside counsel prepared the appropriate papers and appeared before Judge Nevitt on March 17, 2011, to seek a clarification of the judgment to exclude those who were “trapped” in DROP as of 11/20/07.  This appearance on March 17, 2011, resulted in a regularly-noticed motion being set for April 22, 2011.  SDCERS filed its papers in support of a motion seeking this clarification.

Then came the City’s double-cross.  The City filed an opposition to the requested clarification and continued to voice its opposition at the hearing on April 22, 2011.  It was predictable that the City’s outright opposition to the clarification would be fatal to SDCERS’ efforts and it was.  Judge Nevitt entered his final ruling on April 25, 2011, clarifying that his phrase “employees who had yet to retire,” as used in the court’s order/judgment, does not include “Active DROP participants” as SDCERS described them in its motion to clarify because those active DROP participants “had yet to retire” as of November 20, 2007.  This means that there is no relief from the current “correction process” for this group of employees/retirees.

Mayor’s Position Re Unwinding and Re-doing/Extending DROP Contracts

Initially, the Mayor’s office informed SDCERS by letter dated March 7, 2011, that the City would not agree that a DROP contract could be extended beyond its current term even if the employee had grounds to undo it to get additional years of creditable service under the “correction process.”

I/MEA met with COO Jay Goldstone to argue against this position and to urge reconsideration.  As a result, the Mayor’s Office has issued a new and different position by letter dated April 10, 2011 (see attachment above), whereby the City agrees that an employee who has grounds to undo his/her DROP contract under the “correction process” may re-do a new DROP contract for a full 5-year period otherwise permissible.

Interest Crediting Issues

As I cautioned you in my last update message on April 5, 2011, it is important to get a full understanding of when interest is credited on any refund under Option 1 or Option 2 before submitting your paperwork electing one of these Options.  In pertinent part, I emphasized: “Be sure to ask SDCERS for a full disclosure on this before you act.”  You asked those questions, as did MEA representatives who attended the first week of sessions at the Balboa Park Club.  SDCERS has now clarified that, if you wait until after June 30, 2011, but act before July 10, 2011, you will get an additional year’s interest on your Option1/Option 2 refunded monies because interest is credited once annually on June 30th.

Of course, if you are anxious to get your refund for any number of reasons, you may not wish to wait.  And if you wait too long and miss the absolute drop-dead date of July 10thyou will be sorry!  Any correction form which does not arrive at SDCERS before July 10, 2011, will be ignored and the default outcome will be implemented – i.e., your refund will be issued as a fully taxable cash payment to you.  OUCH!   Make a note now: July 9th and 10th fall on a Saturday and a Sunday.  July 8th is the last business day before the drop-dead date.  If you are going on vacation for the 4th of July, be sure you get your correction form in on Friday, July 1st if you are trying to capture another year’s interest which will be credited on June 30th.  Also, be aware that SDCERS is advising employees that there may be some additional delay in issuing refunds to those who wait until after June 30th because of the recalculations which will be required.

SDCERS is now handing out a series of clarifying “frequently asked questions” and answers related to this interest crediting issue and other topics (see attachment above).  SDCERS has informed me that they will also mail a copy of this handout to each and every one of you so that you have this information even if you attended an earlier Balboa Park Club session and/or will not be attending one at all.

Litigation/Electing A “Correction

I/MEA continue to work behind the scenes to advocate for a better outcome on all of these issues which we recognize have shaken many of you to the core.

Meanwhile, regardless of those efforts and/or of any litigation plans which take shape, you will be forced to make an election of one of the “correction” options which SDCERS has presented to you – like it or not.  However, since you must elect one of these options or otherwise face the worst case scenario of a taxable refund of your purchase monies on or after July 10, 2011, you are clearly being forced to make such an election and not choosing to do so.   Many of you have asked for help in crafting a written statement suitable for submission to SDCERS with your correction form to make your intentions clear.  Here is a suggested statement for your use:

“I hereby submit this Correction Form under protest and with a reservation of my rights to seek all appropriate relief in law and in equity for the harm or damages which I have been caused by SDCERS’ and the City’s conduct in this matter.  I do not agree with the correction process and I am submitting the attached Correction Form because I am being forced to do so to avoid being in “default” under the Board’s Resolution and in an effort to mitigate my damages as the law requires notwithstanding SDCERS’ and the City’s wrongdoing.”

We will continue to update you as soon as new information becomes available or new developments are ready to be reported.  Hang in there.

Best regards to all, Ann M. Smith

SDCERS Additional Frequently Asked PSC Questions
Goldstone Letter Regarding DROP Employees and PSC