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Message from Ann M. Smith Re PSC Correction Process Update: MEA’s Board of Directors Authorizes Litigation As Next Step

Author: MEA Staff | Date published: 06/28/2011

This Message covers these topics:

(1) Recapping MEA’s PSC-Related Advocacy Activities through June 2011;

(2) Announcing MEA Board’s Decision on 6/28 to Authorize Litigation as a Necessary Next Step;

(3) Litigation Will Be Conducted on an Individual Named Plaintiff Basis – Not as a Class Or Representative Action;

(4) Getting the Word Out to MEA-Represented Retirees Who Face Particularly Devastating & Unconscionable Consequences from this PSC “Correction Process;”

(5) Contacting MEA to Become an Individual Litigant;

(6) Active Employees Must Still Act To Select One of the Four “Correction” Options (Under Protest) On or Before the July 11th Deadline to Avoid A Taxable Refund of PSC Monies;

(7) Whether Other Potential Non-MEA-Represented Individual Litigants Will Be Allowed to Join the MEA-Sponsored Litigation Will Be Considered on a Case-By-Case Basis After July 18th;

(8) While Litigation Success Is Not Guaranteed, Continued Tough Advocacy to Seek Accountability from SDCERS & the City for Their Culpable Conduct Is

1. Recapping MEA’s PSC-Related Advocacy Activities through June 2011

As you know from multiple prior e-blast messages, at MEA’s direction and expense, since last August, I have been actively advocating on behalf of those MEA-represented employees and retirees who are adversely affected by the PSC “correction process” arising from the now-infamous 2003 “window period.”

In a comprehensive letter presented to the SDCERS Board and the City last August, I outlined in detail the history related to the “window period,” the City’s direct involvement in approving this “window period” and thereafter condoning – indeed encouraging – employees to avail themselves of this service credit purchase opportunity.

I also detailed the history related to my presentation to the SDCERS Board in October 2007 urging the Board to take no further action related to purchased service credits because, among other reasons, an applicable ruling had already been entered by Superior Court Judge Jeffrey Barton in September 2006. This ruling came in response to SDCERS’ own motion during the Aguirre-inspired pension litigation seeking to have certain “contested (pension) benefits” declared unlawful, including service credits purchased at prices which were allegedly not “cost neutral” as required by the Municipal Code.

My oral presentation to the SDCERS Board in October 2007, with an 18-page hand-out supporting it – fell on deaf ears. Although the SDCERS Board voted to “continue to charge the City for the underfunding associated with purchased service credits,” this action – otherwise unnecessary – harmed plan participants because it re-opened the expired statute of limitations on the “window period” PSCs and gave the City a new opportunity to challenge these contracts despite the City’s direct participation in establishing and ratifying the “window period” pricing.

SDCERS thereafter compounded this breach of its fiduciary duty by failing to disclose information about the City’s PSC-related litigation and the court’s rulings when counseling members who had “window period” PSCs about their decisions to retire or enter DROP in reliance on these very same service credits.

In addition to my letters in August and September 2010, I addressed the SDCERS’ PSC Ad Hoc Committee on multiple occasions to protest a flawed process by which neither SDCERS nor the City accepted responsibility for their prior conduct/decisions.

Then on November 29, 2010, I addressed the City Council on the issues related to SDCERS’ proposed correction process and urged the City Council to accept its share of responsibility for the harmful consequences of the “correction process” because:

Notably, when the City filed suit on November 20, 2007, it excluded retirees from the relief it sought – apparently recognizing the irreparable harm which would be caused to those who had already retired in reliance on “window period” PSCs. Yet, after filing suit on November 20, 2007, the City did nothing to warn its hard-working employees before they retired or signed irrevocable DROP contracts about the potential adverse impact on their “window period” PSCs. I urged the City Council to accept the City’s share of blame by authorizing SDCERS to amend the “correction process” to mitigate the harm to employees and retirees.

In a follow-up letter to the Mayor and City Council in January 2011, I set forth the details of a compromise approach and the justifications for it in settlement of threatened litigation. In sum, the proposed approach was to exclude retirees and those in DROP from the “correction process” altogether, and to authorize a “compromise” additional “correction” option for active employees which would permit any active employee who agreed to sign a waiver of all legal claims to preserve the credits he/she purchased during the “window period” by paying the higher purchase price which would have been paid if there had been no “window period” – just as the 4th District Court of Appeal held should have occurred – but with no interest charges added for all the intervening years since 2003.

I argued in support of this compromise proposal that these interest charges are “punitive” in that employees would not have been charged interest at all if the City had simply opposed the “window period” in August 2003 or on a timely basis thereafter instead of urging employees to avail themselves of it, and thereafter ratifying the “window period” purchases as noted above.

In response to my letter, the City Attorney acknowledged that certain employees were “trapped in DROP” by the time the City filed its PSC litigation on 11/20/07 and did not have the option to un-do these irrevocable DROP contracts. Because the City had excluded retirees from the effects of the litigation it filed, the City Attorney encouraged SDCERS to return to the trial court and seek a clarification from Judge Nevitt – whose 12/08 decision in the City’s favor was upheld by the Court of Appeal last June – that his ruling was not intended to include those who were already in DROP even though not “retired” in the traditional sense.

After SDCERS’ attorneys made an initial appearance before Judge Nevitt on March 17, 2011, (which I attended) to preview the issue, they filed the necessary motion to seek just such a clarification. However, in a reversal of position, the City filed an opposition to the Motion and Judge Nevitt predictably denied it when faced with the City’s opposition.

Meanwhile, City Attorney Goldsmith also informed SDCERS that it would be an executive decision – i.e., the Mayor’s decision – whether or not employees would be allowed to extend their DROP contracts if they re-opened them to “correct” for the challenged “window period” service credits. Initially, the Mayor’s office conveyed a written position to SDCERS that the City would not allow an employee to extend his or her DROP contract beyond the five-year period originally set even if some of these years were forfeited by a “correction.” After meeting with City’s COO Jay Goldstone to protest this “punitive” position, the Mayor changed his position. Accordingly, an employee may “correct” the PSC issue by re-doing his or her DROP contract and starting a new five-year period.

After SDCERS had mailed option letters to active employees, I and MEA staff challenged the lack of sufficient explanation related to the formulas being used to calculate the cost of each option, as well as the lack of transparency regarding the additional interest which would be credited if an active employee waited until after July 1st to submit his/her election. SDCERS cured these deficiencies by sending a second letter to all active employees with additional information and with notice that active employees could wait until after July 1st to submit their election in order to capture extra interest owed to them under Options 1 and 2 as long as they acted on or before July 11th.

During April, May and June, Mike Zucchet and I have met with City Attorney Goldsmith and the Mayor’s office for “confidential” discussions aimed at trying to identify any potential mutually-beneficial solutions/outcomes for affected employees/retirees and the City designed to avoid the extraordinary costs, delays and uncertainties associated with litigation. Of course, these informal discussions – even if productive – will, at best, be only a preliminary step since any proposed resolution would require approval by the Mayor and City Council based on the advice of the City Attorney.

While we intend to continue to pursue informal “confidential” discussions with the Mayor’s Office and the City Attorney until these efforts have been exhausted, I felt that it was time to seek the MEA Board’s authorization to prepare for litigation if it becomes the unavoidable next step. After updating MEA’s Executive Board in a pre-planned meeting for June 23rd, they agreed that a recommendation related to litigation should be made to the full Board in a special meeting called for June 28th.

2. Announcing MEA Board’s Decision on 6/28 to Authorize Litigation as a Necessary Next Step

After careful consideration and discussion during a special meeting on Tuesday, June 28th, the MEA Board voted to approve the Executive Board’s recommendation authorizing me to move forward with litigation related to the PSC “correction process” – when and as necessary in light of the above-referenced informal “confidential” discussions – and to do so on behalf of those affected MEA-represented active employees and retirees who (a) wish to become litigants, (b) agree to pay a one-time administrative fee, and (c) accept the terms of representation by my firm at MEA’s expense. With the exception of the one-time administrative fee, MEA’s Board agreed that MEA would fund all other fees and costs associated with this litigation.

3. Litigation Will Be Conducted on an Individual Named Plaintiff Basis – Not as a Class Or Representative Action

Pursuant to the Board’s authorization, MEA will retain my firm to represent those individual MEA-represented active or retired employees who (1) contact MEA’s offices to express interest in becoming a litigant; (2) have their eligibility confirmed; (3) agree to pay a one-time administrative fee to MEA for the extraordinary, paralegal services which will be involved in this litigation ($300 if active; $500 if retired); (4) attend a meeting with MEA’s designated representatives at MEA’s offices on a date and at a time to be scheduled; (5) sign all necessary paperwork, including an Intake Form and a Disclosure & Conflict Waiver Form Re MEA’s Retention of Attorney Ann Smith & Her Firm To Conduct Litigation Under MEA’s Direction And Control; (6) provide all pertinent documents to MEA for copying (per instructions in advance of the meeting); and (7) pay the administrative fee after reading and signing all required forms.

MEA Will Not Proceed By Class Action – You Must Decide To Join The Litigation Or Not Join It. This Will Be Your Personal Choice.

When a civil complaint is filed in the Superior Court, each employee/retiree who has undertaken these required steps will be named as an individual plaintiff. No employee/retiree will be included in this MEA-sponsored litigation unless he or she makes an affirmative decision to be included.

Thus, any individual MEA-represented active or retired employee who does not wish to be involved in this litigation or who does not wish to be represented on the terms the MEA Board has authorized, is free to proceed as he or she wishes – i.e., by taking no action or by retaining other counsel to take legal action on his or her behalf. For example, some MEA-represented employees/retirees may not wish to sue because they have already opted to receive a full refund of the monies they paid for their “window period” PSC contract with interest added for the period 2003 through 2011, and this opportunity was actually beneficial to them, not harmful.

MEA will not proceed with litigation by proposing a class action whereby a few individuals are named as class representatives and, if a class is approved by the court, all class members are included in the action (and bound by the outcome whether good or bad). Nor does MEA have standing to proceed with litigation as a union plaintiff acting on behalf of all represented employees – as it has done previously in pension-related litigation when MEA’s own agreements were implicated. [In fact, MEA is involved presently as a union acting in a representative capacity on your behalf in the litigation the City initiated against SDCERS challenging the method used to determine your employee pension contributions to SDCERS and seeking to have your contributions vastly increased to pay for investment losses!]

Although MEA’s MOUs include the purchase of service credit program as a negotiated benefit, it is not the program itself which has resulted in the harm employees/retirees are now facing; rather the harm flows from the SDCERS Board’s decision, as plan administrator, to extend a lower price for service credit purchases through a “window period” with the City’s consent as plan sponsor, and from SDCERS’ subsequent breaches of fiduciary duty in 2007 and thereafter in connection with the PSCs it had signed with plan participants. Thus, individual PSC contracts will be the focus of this litigation. However, MEA recognizes that the City, as employer, also has blame in the matter because of its own conduct and failures related to these “window period” PSCs which have contributed to the harmful consequences for active and retired employees who reasonably relied to their detriment on the finality and enforceability of these “window period” PSCs.

4. Getting The Word Out To MEA-Represented Retirees Who Face Particularly Devastating & Unconscionable Consequences From This PSC “Correction Process”

Please help MEA get word to former MEA-represented employees who are now retired and who may wish to know about the Board’s decision and the opportunity to get MEA’s help with litigation over this PSC “correction process.”

As you know, retirees face particularly devastating harm as some will have their pensions cut off entirely since they have insufficient service credits to be retired at all; others face a reduction in the amount of their monthly pension allowance; and both groups face a draconian demand to repay SDCERS for all “overpaid” pension benefits with interest added at 8%.

As reflected in the litigation decision made today by MEA’s Board, these shocking and unconscionable consequences for fellow MEA-represented employees who expected to enjoy the retirements they had earned with peace of mind and financial security (as each active employee hopes to do someday as well!) will not be tolerated by a union which has a proven record of aggressive advocacy for its members at the bargaining table and in court when the circumstances require it.

5. What You Need To Do To Become An Individual Litigant

As described above in Section 3 of this Message, the process to become an individual litigant/plaintiff in this MEA-sponsored litigation will begin by notifying MEA via e-mail of your interest to join or learn more about the litigation. Please send your name, contact information, status (active or retired) and job classification/department to MEA Communications Coordinator Lora Folsom at psclitigation@sdmea.org. Once your e-mail is received, MEA staff will verify your information and eligibility to participate in the litigation as an active MEA-represented employee or as a retiree from an MEA-represented classification. Once verified, you will then receive copies of the various forms and disclosures as described in Section 3 above, and you will be notified of the schedule of informational meetings to be held at MEA over the next several weeks. MEA encourages you to start this process as soon as possible in order for all individual litigant/plaintiffs to be identified no later than August 8, 2011.

You need not and should not contact me or my law office directly because such contacts will only result in delays and inefficiencies which will distract me from the crucial (and time-consuming) legal work entrusted to me. Your understanding and respect for these litigation protocols will be appreciated. I and my firm will oversee the administrative, paralegal work being handled by MEA’s highly capable staff; I will prepare and approve the Intake Form and the Disclosure & Waiver Form, and direct MEA’s staff with regard to the documents needed.

I will also oversee the meetings which MEA’s designated staff representatives will conduct with you but I will not be personally present at each and every one of these meetings. The demands of handling the litigation itself will simply not permit this. Please be assured that I will get all necessary information and questions from MEA’s staff. After more than 25 years of service as MEA’s labor counsel, I and my law firm are already very practiced in working with MEA’s skilled and dedicated staff in the team effort needed to deliver the highest quality representation!

6. Active Employees Must Still Act To Select One of the Four “Correction” Options (Under Protest) On or Before the July 11th Deadline to Avoid A Taxable Refund of PSC Monies

As we all know, the deadline for active employees to choose one of the four options defined under the SDCERS’ “correction process” is July 11, 2011. If you do not make a timely selection, you will be in default and your “window period” PSC purchase monies will be directly refunded to you with all applicable taxes deducted. However, as long as you make your selection after July 1st, you will be credited with another year of interest for the July 1, 2010, through June 30, 2011, fiscal year.

Don’t miss this July 11th deadline which still applies despite any litigation!

The decision by MEA’s Board to authorize me to proceed with the next step of litigation in this matter does not change the fact that active employees must act on or before this July 11th deadline. In a prior e-blast, we provided the language which you may (though you are not required to) submit with your selection as follows: “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.”

7. Whether Other Potential Non-MEA Represented Individual Litigants Will Be Allowed to Join the MEA-Sponsored Litigation Will Be Considered on a Case-By-Case Basis After July 18th

MEA anticipates that it may receive requests to join this MEA-sponsored litigation from active employees who are not presently represented by MEA and/or from retired employees who were not in an MEA-represented job classification at the time of their retirement. In fact, MEA also anticipates that it may receive requests to join this litigation from active or retired employees who are/were unrepresented or represented by another Union.

Any such requests will NOT be considered until AFTER July 18, 2011. Requests will be screened and handled on a discretionary, case-by-case basis in accordance with appropriate guidelines (and on a different administrative fee scale) as established by MEA.

8. While Litigation Success Is Not Guaranteed, Continued Tough Advocacy To Seek Accountability From SDCERS & The City Is

Since the repeated challenges to pension benefits first began in 2005, MEA has been forced to expand its advocacy beyond the bargaining table in order to protect the legitimate pension rights of MEA-represented employees. At MEA’s direction and also at MEA’s expense, I have been at the forefront of these legal battles in order to assure that your voice is heard and that you have your day in Court on matters of vital importance to your retirement security.

Having pressed the City for the past several months to participate in a responsible, non-litigation solution to this difficult PSC situation (in which employees and retirees are blameless), we find that a solution still eludes us and may never materialize.

Accordingly, despite the complexities and challenges associated with any pension-related litigation amidst the current anti-public-employee climate, and despite the unique complexities of this litigation in the wake of the Fourth District Court of Appeal’s decision, MEA is determined to demand accountability from both SDCERS and the City for the undeniable harm being visited upon employees and retirees by SDCERS’ benign-sounding “correction process.”

While neither MEA nor I can or do promise that this litigation will be successful, we are committed, as always, to the pursuit of justice.

In solidarity, Ann M. Smith