San Jose police and firefighter pension trustees lost a dramatic bid Thursday to distribute bonus checks to retirees in defiance of a City Council move to suspend the extra payments amid a $2 billion retirement fund shortfall.

The council in October voted to suspend the bonus checks — which are paid out in years the funds exceed their targeted returns — for eight months while the city seeks to reform its pension system. Council members cited a recent audit that found the two pension funds are on track to run out of money unless the cash-strapped city pumps in millions of new tax dollars, which would further erode public services.

Three trustees representing current and retired officers and firefighters voted Thursday to take up to $1 million from the pension fund and distribute it as an “extra check” to more than 1,700 retirees and their survivors.

Those trustees — retired cop David Bacigalupi, current Officer Conrad Taylor and firefighter Sean Kaldor — argued that they shouldn’t hold up the bonus checks while city leaders seek to negotiate broader pension reforms with union leaders.

But with a vacancy on the seven-member board, the move was blocked by the two council members who sit as trustees — Sam Liccardo and Rose Herrera — plus city Finance Director Scott Johnson, who also serves on the board.

“We have a responsibility to all of the families and all of the plan members, folks who are going to be shortchanged if this plan becomes insolvent,” Liccardo said.

The city next year faces a 10th straight operating deficit, and city officials announced Thursday that it had grown from $70 million to $90 million because of increased pension payments. Just two weeks ago, the estimate was $41 million.

Still, the bonus-check blockage enraged retirees, who say many officers and firefighters who retired long ago and whose pensions have been diminished by inflation count on the extra money.

“Please think of your responsibility to people like me who depend on this distribution,” said Ken Heredia, a former firefighter and board trustee. “It’s a very dear thing to me.”

Heredia retired from the department after 30 years in 1999 with a pension totaling about $83,000 a year. With automatic annual cost-of-living increases, his pension now totals about $112,000 a year, city records show. Those records suggest his bonus check would be about $400.

The bonus check benefit was established for police and firefighters in 2001 to help older retirees whose pensions had lost purchasing power. The extra money is distributed at year’s end by a formula that takes into account years in retirement and years worked for the city.

Jay Wendling, president of the Association of Retired Police Officers and Firefighters, said that while there has been ample criticism of retired officers and firefighters drawing six-figure pensions, others receive benefits of less than $25,000 a year. City records obtained by the Mercury News, however, indicate that many with pensions that size worked less than 10 years for the city.

San Jose officials have questioned whether the benefit is really accomplishing its goal of serving needy pensioners. A city analysis of the proposed bonuses showed that while the biggest checks would go to the small percentage of longtime retirees whose yearly pensions are as low as $12,000, more than 400 retirees would receive bonus checks of nearly $400 even though their pensions top $100,000 a year.

“I don’t think this plan is working the way it was intended,” said Johnson, the finance director. “The majority of the distribution is to folks where I question whether there truly is a need.”

The city’s other employees enjoy a similar benefit that was established in 1986 in a way that allowed the council clearer authority to suspend it. Wendling and lawyers for the police and firefighter unions argued Tuesday that the council lacked authority to block the police and fire trustees from distributing bonus checks, and they threatened to sue.

In other action, the board unanimously approved a disability pension for former trustee and fire Capt. Mark Skeen, whom the city manager fired last year for fraudulent travel expenses.

Liccardo was unhappy with the move, but attorneys argued that Skeen — who says he has back troubles — was lawfully entitled to the benefit. By receiving disability pensions rather than regular ones, retirees can save thousands of dollars on their federal income taxes.

Contact John Woolfolk at 408-975-9346.