$9.7-Million Retired City Workers’ Settlement

The city will pay about 2,200 retired city workers more than $9.7 million in extra retirement funds the retirees contend were denied them in 1983, according to an out-of-court settlement unanimously approved by the San Diego City Council on Monday.

Retired police officers, firefighters and other former city employees sued the city in 1984 after the Retirement Board withheld a massive surplus that would have scattered $8.9 million among the retirees.

Former city workers covered in the settlement will receive $209 for each year of city work. The retiree with the longest tenure, 48 years, will receive $10,032 and the average retiree, with 21 years of service, will get $4,389.

The disputed benefits came under the “13th check” program. Beginning in 1980, if pension funds exceeded the amount paid to retired workers, half the surplus was distributed among retirees in the form of a 13th check, an extra monthly payment. In 1980 the total given back was $1 million, in 1981 it was $511,401 and in 1982 it was $681,346.

But in 1983, exceptional investment returns swelled the retirement surplus for redistribution to more than $10 million, and Retirement Board officials moved to save some of it. In May, 1983, the board created a cap on the 13th checks. Retirees would receive a maximum of $30 per year of service--$630 for the 21-year veteran--and the remainder was kept in reserve accounts.

City officials justified the move by saying the 13th check was designed to offset late-1970s inflation, not to provide retirees with a windfall. They said the cap was necessary to ensure the financial health of the retirement system. Under the formula adopted in 1983, only $1.4 million went out to retirees in the form of a 13th check, and $8.9 million went to reserves.

Retirees filed a class action suit in Superior Court in February, 1984, alleging that the board had overstepped its bounds by altering the 13th check formula without City Council or employee approval. The court ruled in favor of the retirees in November, 1984, and rather than endure a pending city appeal, both sides agreed to a compromise payment that nearly equalled the amount the retirees sought.

“Slam dunk. It’s all through,” Jack McGrory, assistant to the city manager, said after the final vote. “It’s been a long two years on this thing.”

Acting Mayor Ed Struiksma said the settlement satisfied both parties. “I think the employees and the city have reached a point where we can agree,” he said. “They fared well in the negotiations, and so did the city.”

John Klevens, a Los Angeles attorney for the plaintiffs, said the retirees had to give up about $1 million of the claim in the settlement.

“I think the Andrews case (named for plaintiff Darrell Andrews, a retired firefighter) is important because it allowed the retired individuals to prevent the Retirement Board from withholding millions of dollars,” he said. “I think this came out the way it should.”

Ron Saathoff, president of San Diego Firefighters Local 145, helped initiate the suit. “It was definitely worth the fight,” he said. “We’re satisfied. It’s kind of a David and Goliath situation. It’s not easy for a layman to recognize the problem, do the necessary research and have it be successful in the courts.

“We may have recovered all the money on appeal,” said Saathoff, “but retirees are passing away each year, so we decided that it was in everyone’s best interest to settle now.”

Although retirees won the battle for the 1983 surplus, city officials have gained a cap on the 13th payment. In 1985, in exchange for the $30 cap, the city offered to sweeten the retirement package by raising the cost of living adjustment and providing health care, a more than $100-a-month improvement. Employees overwhelmingly voted in 1985 for the new package.

“It was catch as catch can,” Saathoff said of the old system. “We didn’t like the 13th check from the beginning. We preferred a guaranteed funded benefit that did not fluctuate.”

Under the new formula, the city will accumulate unprecedented reserves.

“We paid out $9.7 million in 1983,” McGrory said. “But by making the changes, we will save about $21 million in 1985 and 1986 alone. The stock market went nuts this year and we’re looking at about a $30-million surplus at the end of this year.

“In future years we’ll have a stable and responsible benefit for employees, and we’ll have one that does not do long-term financial damage to the system.”