City official sues SF over pension payouts

San Francisco City Controller Ben Rosenfield San Francisco City Controller Ben Rosenfield Photo: Erin Allday, The Chronicle Photo: Erin Allday, The Chronicle Image 1 of / 1 Caption Close City official sues SF over pension payouts 1 / 1 Back to Gallery

San Francisco’s chief fiscal officer has sued the city’s retirement board for approving pension increases for about 8,300 longtime retirees, saying the action defied the will of the voters and would cost the city more than $200 million in the next five years.

That $40 million annual cost is “about how much we spend every year on resurfacing streets in San Francisco,” city Controller Ben Rosenfield said Thursday. His lawsuit, filed this week in Superior Court, is scheduled for a hearing Oct. 4 on Rosenfield’s request for an injunction to halt the increases.

The dispute involves Proposition C, a November 2011 ballot measure sponsored by Mayor Ed Lee. Its provisions included a partial rollback of pension cost-of-living increases that city voters had first approved in November 1996 and enhanced in two later measures. Adding to the annual inflation increases retirees were already allowed to receive, the measures gave them an additional increase of up to 3.5 percent in years when the retirement fund’s earnings were higher than anticipated.

Prop. C sought to limit those added cost-of-living increases by allowing them only when the retirement fund was considered “fully funded” to pay all current debts. After it had been in effect for more than three years, however, the state’s First District Court of Appeal ruled in March 2015 that employees who had retired after November 1996 had a vested right to pensions under the system in effect when they left.

The court overturned the cutback for those retirees but said the city “may” enforce Prop. C against employees who had retired earlier, before the increases were approved. Initially, the board of the San Francisco Employees’ Retirement System decided not to restore the pension increases for the pre-November 1996 retirees but changed course in July, ordering the additional payments.

In his lawsuit, Rosenfield said the court ruling — despite its apparently permissive wording — required the city to follow Prop. C and end the increases for employees who had retired before the voters first approved the additional payments. He said the payments would immediately cost $34 million and would reduce the value of the pension fund by $148 million because of unfunded debts. Rosenfield later said the five-year cost was estimated to be more than $200 million.

The payments would also require “an increase in the contribution rates paid by the city and employees, and once paid may be impossible to recover from the retirees without causing hardship to them,” Linda Ross, an attorney for Rosenfield, said in the suit. She was referring to the possibility that a judge would deny the injunction, allowing the increases to take effect, but would later decide the lawsuit in the controller’s favor.

The retirement board and its lawyer were not immediately available for comment. But David Clisham, an attorney for the retirees who challenged Prop. C in court, said Rosenfield’s suit would harm 8,300 of San Francisco’s oldest retirees.

“The city’s not broke,” Clisham said. “The retirement system is in excellent condition. This is a benefit that these people had for 15 years.”

Bob Egelko is a San Francisco Chronicle staff writer. Email: begelko@sfchronicle.com Twitter: @egelko