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SF loses lawsuit against Mayor Lee’s pension reform measure, pays out $750K in legal fees

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A group of retirees, who call themselves “Protect Our Benefits,” won a lawsuit against The City over a pension reform ballot measure. (Jessica Christian/S.F. Examiner)

When Mayor Ed Lee was still an appointed interim mayor in 2011 and had yet to win an election, he pushed through with the help of the late Warren Hellman a pension reform measure to reduce The City’s costs.

Proposition C, the mayor’s pension reform measure, was approved by nearly 70 percent of the voters in November 2011 — the same election in which the mayor was elected to his first four year term. The effort came following the Great Recession when the pension fund took a hit and as The City was raising alarms about the unfunded growing liability of paying retiree pensions.

But a group of retirees — who call themselves “Protect Our Benefits” — was none too happy with one Prop. C provision that cut them out of an up to 3.5 percent supplemental cost of living adjustment, and sued to strike it down.

Not only did the group prevail with the lawsuit in invalidating that provision, but The City has to pay Protect Our Benefits its legal fees to the tune of $750,000, which the Board of Supervisors unanimously approved on Tuesday.

The person behind Protect Our Benefits is former San Francisco Police Department Lt. Larry Barsetti, 68, who retired in 2003. His group had received hundreds of thousands of dollars in contributions from other retirees to help pay for the litigation.

“I am the one who started the lawsuit because I could read the Constitution,” Barsetti said. “I went to the mayor and told him, ‘You can’t do this,’ before it was actually on the ballot.”

Barsetti recalled at the time he had a meeting with the mayor and his chief of staff Steve Kawa, which began with the mayor, who left, and then conversations continued with only Kawa.

“I went to the mayor. He didn’t want to hear it. Actually his chief of staff didn’t want to hear it and I think he runs this place anyway,” Barsetti said.

The Mayor’s Office did not return a request for comment.

“We won. We are keeping it. And that’s that,” Barsetti said. “A deal is a deal.” He estimated the win would cost The City “something like $280 million — if in fact all the numbers hold” over the next two decades.

The supplemental cost of living adjustment (COLA) was granted by voters in November 1996 when the pension fund was flush and the Board of Supervisors at that time argued in the voter handbook that “we can afford this help” and there were “retirees living at the poverty level.”

Before Prop. C, a supplemental COLA was granted whenever the pension fund, overseen by the San Francisco Employees’ Retirement System, exceeded its expected earnings and was deemed fully funded based on actuarials, but post-Prop. C COLAs are granted only if the fund’s performance exceeded its expected earnings and SFERS was deemed fully funded based on the market value.

But Barsetti’s effort wasn’t a complete victory. The court ruled the COLA provision of Prop. C would remain in place for city workers who retired before 1996. Barsetti’s legal victory means those who retired after 1996 or employees hired before Prop. C went into effect on Jan. 1, 2012, will continue to get the supplemental cost of living adjustment under the rules before Prop. C.

“The ‘pre-96ers,’ we call them, the very oldest of them. My father is one of them, he is 91 years old,” Barsetti said.

However, the SFERS board, which oversees the $20 billion pension fund, decided in July 2016 to grant the Prop. C exemption to pre-1996 retirees anyway.

That decision didn’t sit well with City Controller Ben Rosenfield, who filed a lawsuit with the City Attorney’s Office to overturn SFERS’ decision. Rosenfield recently prevailed in the case, but SFERS filed a notice to appeal the decision.

The City estimated in the lawsuit that the supplement COLA for pre-1996 retirees would cost $34 million in retroactive payments since 2012 and an estimated $100 million going forward.

“I remain deeply concerned that the actions of the Retirement Board was in conflict with the will of the voters; extremely expensive for both city taxpayers and our employees; and clearly overstepped their authority under the Charter,” Rosenfield said in an email to the San Francisco Examiner Tuesday. “The courts agreed with us, and ruled in The City’s favor.”

SFERS did not return requests for comment.

Barsetti makes no apologies for undermining one aspect of Prop. C’s cost-saving measures and was critical of the pension reform altogether, calling the dire financial projections “bullshit.”

“This is the richest city on earth. There is more money in San Francisco than God has. Why the hell should I have to suffer for this city?” Barsetti said. “This city blows money for stuff like it’s water.”

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