a 4.5% wage increases across the board every year? >> the assumptions recommended and have been in place for 20 years assume that there is a component of wage growth at 4.5%. there's also another 1.5% of attributable to new employees that just in year one is through 3, those can be significant increases. the basic growth of wages without consideration for promotions, it is soon to be 4.5%. that is what they're going to be looking at based on the information we sent them on the last year of retirement data, to find out if it is long term, still a valid assumption.

they are looking out for years, a minimum of 20 years, and they don't try to react to budget cuts during a two-year period or flat salaries. they look at the history of the employer, whether there has been long term sustained growth of wages. that is how they said the assumption. supervisor chu: what supervisor elsbernd spoke of earlier, that is something that will go a long ways to smooth out the cost over time. truly, when we lost the $3.5 billion because of the general nature of the economy and stocks going down, our pension fund lost out on that. we are making up for it by trying to catch up where we were. several years ago, we had $3.5

billion more overall than we currently -- or what we had. that had to do with the stock market general economy. the city's policy has been to smooth out those losses. even if we were earning a pretty decent rate, we would have to make up for that loss over the next five years, and that will be represented in an increase, right? dodge what you said is exactly correct, supervisor. if i could take half a minute to address something that supervisor maxwell mentioned earlier. the systems all of this year has fluctuated in value between 13 and $13.5 billion. what i want to point out to you is that our high water mark, it

was about three years ago for a sustainable period. there was actually one day where we jumped over 17 billion. even though that was the high water mark, the point to want to make is this. we are using the term $3 billion-loss. i don't like using that term "loss." i don't think it is accurate for this. you don't have a loss until you write it off. i wanted to tell you that we have not been recognizing losses. if you read about other major funds having major write-offs and real estate projects, other things that have gone south, that money is never coming back. we don't have any of that in the san francisco fund. we have a declination in value.

we are holding these assets and the values hopefully will come back up. over five years, perhaps, but nothing went wrong and nothing was absconded with. we have not had to write anything off. and just wanted to make sure i touched on that. >> in comparison to other jurisdictions, was our reduction in value about the same, similar, if we do better? do we have any sense of that? dodge that is a difficult question to answer. we are anywhere from in the middle to better than average in terms of the declination of value. that is just declination of value. we are far superior in that we have not had to write off investment that we put into real estate venture that went belly up and is gone.

i also always couched this, that we are one of the best funded -- one of the best funded major plants in the nation if not the best. our percentages are incredibly high. >> this might be a question to supervisors elsbernd. with the average scenario we're talking about, even in 2015, we expect the contribution rate to be 27%? >> even if we earned 7.75%, it is still at least 26%, maybe 27% or 28%. this is pure speculation, where you said that the loss was about, in terms of peer

comparison, a think our game is better than middle of the pack. is it to the 12% that we earned this year, we're probably in the top? >> we use very conservative standards if you want to compare us to other funds in the state of california or nationwide. and i say conservative meeting that we are not using smoke and mirrorse and mirrors. this five-year time frame is much shorter than many other funds. the other thing is with our rate of return, we assume the modest 7.35%. we were holding our breath. without that we would actually exceeded 13%. we did not get there, we were in the high 12's. supervisor chu: the current rate is about 15%? >> 13%. supervisor chu: okay.

>> on the $2.5 billion plan compensation. supervisor chu: okay, and then a question about the actuarial spree that we were talking about all the different factors that go into driving that number, whether the population or other demographics. it is their one big driver that really makes a difference with what our obligations have to be? is it primarily gains on your pension, the rate that we are learning is not salary increases? >> i would say is a combination of both. every year, we calculate on the demographics side whether we had a gain or loss. if more people die than we expected or more people retire than we expected, that is translatedñi into a dollar valu, which is either increase or decrease and actuarial liability

for the pension plan. that is coupled with if we made it 7.75%çó or 12.5%, that would be a game because we made more money than we assumed. every year it is determining what the employer contributes. all of those factors are included in the formula. all of them are taken into effect. the $700 million that we have to recognize over the next five years, the same is true, if we made it $1 billion back last year, only $200 million is recognized over the next five years. when you have positive years, better than you expect years, we get back into this area we had previously. every year, all of that is calculated as either increase or decrease in the liability, the actuarial liability. if it is good news, it reduces the employer contribution.

if it is experience greater than we expected, either on the dara -- either on the democratic side or on the investment side, it tends to increase the employer contribution. supervisor chu:ñr okay, thank y. supervisor mar: enough of my speculating on trying to remember the numbers. i just looked at the final grand jury report. the final appendix has the actuarial projections, with the range of what the investments could be. the rosiest assumptions and the most negative assumptions, and it tells the potential employer contributions. i imagine if it is in the appendix, i imagined -- that is on the jury's website? ñithe actuarial report? ñwii>> it is also on the retiret system. >> ok.

great. supervisor mar: thank you. i want to be respectful of everyone's time. we have eight more findings and a number of recommendations. i appreciate all the department's staff here that are responding. supervisor chu, should we go to the finding on the others that would pay their own contribution in exchange for a 6% wage increase? there was no actuarial valuation to estimate the resulting pension liability for the city. this resulted in a substantial increase of payment to the city without vor approval. then there is a number of responses that partially disagree, and one that is not stated. ms. callahan? >> thank you, mr. chair. i can only agree with one of finding and that is there was no actuarial evaluation of the

specific proposal. it is important to correct a mistake in the grand jury report. the date of what we would call the swap, the point at which our largest union would resume payment of their own employee pension contributions, 7.5%, is july 1, 2011. that is significant. we cannot agree to have this. we did not agree to do so because we were anticipating a large number of retirements and we did not want to give people an incentive to stick around to draw an increased pension after a race. -- after a raise. we did have about double the number of retirements that we normally have in any year, largely because the expirationñi of the sick leave at cash out program and a large number of people choosing to retire.

for those reasons, that is important because it actually goes into the city's strategy with the second employees payment wages. as you have heard, the actuaries to sell 4.5% wage increase -- assume 4.5% wage increase. we think those are overstated. in fact, -- they're not overstated, but they are over what is happening now. we have had a lot of employees retire, but we are also not hiring. as a time of contraction, must let -- much lower hiring. the step program, which is every year moving potentially 5% up, is lower than in the past. of the employees who are here, the overwhelming majority are at the top step, 80%. we think 1.5% will be high on that. in addition, we have not agree

to any 4.5% wage increases while i have been here and in the last several years there has not been an increase that we have had to pay the increased pension contribution on yet. the 6% is over the pension compensation that employees get from that, is in fact held against -- we had zero the two prior years because of the concessions and furloughs, so we are actually ahead of the game, if you will. so i want to address that point. it is a little bit murky. i also want to point out that we would not be able -- i have to disagree with the finding that we should engage in actuary every time we qr negotiations. we are in añr very strict time line to reach contract agreements so they can be included in our budget for the upcoming fiscal years, and we have labor contracts with 48

labor organizations. we rely on the projections of both the controller, the mayor's budget office, and the retirement system to ensure that we do not take actions at the bargaining table that will put us out ahead of what is anticipated and that we can afford. and we try to do that. however, also, as much as we would like to be able to control what is negotiated, we like to reach agreement or go to a pending arbitration -- or go to binding arbitration, said the city cannot literally unilaterally decide what the wage increases will be, and any wage increase does, depending on whether it is above the projection, it has an impact, it can have an impact on the pension system obligation. i want to point out one thing. the person might be disappointed to learn that propped d that we

had only had long-term impact on savings to the city. that is because of vested rights. legally, there are prohibitions against taking things away from people that they understood to be theirs when they began employment with the city. however, there is a real way the city controlled pension costs and that we are engaged in, and that is the number of employees and the number of races, and that is something we're looking at seriously -- and the number of raises. we're looking at whether it can be filled with a classification that fits the job that is potentially at a lower rate of pay. those are things that we can do and are doing right now. supervisor mar: thank you. are there any other responses to this finding? miss stevenson? >> it is listed in the table, there is an ordinance which requires the controller's

estimate of cost for every labor contract. so distinguishing there is not a requirement for the actuarial report, but we all believe the cost of labor agreement is important and should be known before you vote on approval. that ordinance requires our estimate of cost, with the memorandum of understanding and submitted to the board, and you could look out a couple of years, the wage increases added to the wage base and the employer cost of that in terms of the retirement contributions shown to the budget years that it affects. supervisor mar: thank you. mr. amelia? >> just quickly, this transaction or negotiation was the cost neutral to the fund. the fund does not recognize whether the dollars are coming and from the employees or from the city, as long as that same dollar amount is coming in, the obligation is satisfied.

that is where our partial disagreement came from. supervisor mar: thank you. any other questions about b2? b3, the finding was retirees receiving pensions > $75,000. there is pretty much agreement or no response necessary. ms. callahan? >> we have included our survey, which compares miscellaneous pensions, basic pension benefits. it would conduct that survey regulate and i believe the board has seen it before and we will continue to provide it. we agree that it is a matter of public interest. supervisor mar: thank you. at any other questions? finding c1, proposition h requires if the city contribution exceeds the 0%, the city must meet and confer to determine a cost sharing arrangement. the city's contribution rate has exceeded 0% since the fiscal

year 2004-2005, and there have been no meet and confer sessions. ms. callahan? >> we disagree because there have been meet and confer sessions in the labor christmas that we have with the firefighters' union and the management association representing the police and fire employees. the meet and confer process requires us to reduce our contracts. as much as i like to be able to come up with my own provisions and insert them unilaterally, i am not able to do so, and we have met and conferred. that is how these permissions got into the contract. our response includes the provisions of the contract. in approximately 2003, the police and fire unions agreed to increase -- to start paying the employe contribution which had previously been paid by the city, 7.5%, and continue to do

so even after other unions had either a wage increase and better economic times or had that payment restored. their contribution at 7.5% is at what we understand the maximum to be according to the charter, and the funds that are identified if you simply do the math, and that is included in the chart, it indicates over time that it has been at approximately $20 2 million -- excuse me, the payment that employees have made by that method is $20 2 million. the incremental cost of proposition h is $205 million. we anticipate because of the amortization, the payoff of a liability to go through the higher benefit, there was not a higher contribution made. that is being paid off, and we

anticipate that the employee contributions will more than pay for it by the next year. supervisor mar: thank you. >> it only requires zero contribution in the charter, and it is certainly true that we have more than that that obligation. supervisor mar: thank you. and the other responses? let me move to c2, where there is some disagreement among the mayor, the city attorney -- or the mayor, the comptroller and the retirement board agreement and the da charter agreement. the finding is unfunded pension liabilities as of july 1, 2009, $276 million, amortized to $26 million per year. i thanked dhr disagreed -- i think that's dhr disagreed and the others disagreed. >> we should establish a cost

sharing arrangement. supervisor mar: okay. any other questions about c2? moving along, b1, the fighting was the soon to be retired have increased pension a bowl benefits. -- pensionable benefits. the jury found nursing supervisors that had pensions on both, sometimes referred to as pension pyramiding, and we have a number of responses from the mayor's office, the retirement board. i would just like to know if mr. emilio or others -- if they partially disagree, why? and also, the mayor's office had a partially disagree response as well. >> supervisors, which partially

disagree because we do not understand that to be the true definition of pension pyramiding. this instance was an employee who had held two concurrent positions under which she was entitled to her service on the retirement system as well as accumulate cessation that would be calculated for pension purposes. i will note in this one particular instance, she had done this nine years prior to retirement. which i think, by definition, would defeat the attempt as to pension spike. my understanding is that dhr has looked at this practice. i will let miss callahan address that. supervisor chu: just for my own understanding, what is your definition of pension pyramiding? >> it is when you are receiving a pension and you are earning

another additional pension from that same employer. it is the same thing as premium pyramiding, where you have a premium and calculate and other premium on top of it. people have said they have tried to google the definition, but this was a legitimate -- i understand it was a legitimate issue, she was holding two positions and she had done it long term for the department, and basically by the definition of compensation that we have to count towards pension purposes, they had to include the pay that she received from both jobs. we have a lot of instances where people are working for the city, also having another job at the school district or with the community. the city does not necessarily know that person has the job, but the retirement is required under covered employment. so we have other cases that mickey would not be able to see because they are working at the

school district or working with another city employer. supervisor chu: is the situation one where the employee is working part-time in both of them? >> sometimes. i think there is a city policy that if you have another job that you have to get approval and it has to not interfere with your job hours a j7bb assignmens with the city. i don't know the particulars of this, but we have a lot of safety folks who teach nine classes -- teach night classes at the community clucollege or h the school district. again, because of the broad definition of compensation that is included for the non safety folks, any paid a receipt for covered employment is counted, even if it happens to be -- and this lady's case, she worked over 3000 hours in the nine years leading up to her retirement.

we can give her additional service credit, but we had to count the pay because it was covered employment. supervisor mar: miss callahan? >> thank you. i want to speak to the example that was raised. we reviewed whether there were city employees who were holding two jobs and receiving pension on both. in most cases, it is not a problem or would not seem to be a problem in terms of public policy because the individuals have cobbled together two part- time jobs. it also has mr. pierce points out, in many cases we will know as a city if they're workingñi with another employer. they could potentially have a full-time job at theñr committee college and the city. the weber, to the extent they are worki,g within the city entirely -- however, to the extent they're working [ the city entirely and holding full-time jobs, we're working withñi thexd department, primary the department of health, as

noted in the report, working with them to adopt a practice of not giving people those jobs. i think a potential reform that could be considered prospectively might be limiting pension-able earnings within a year, as an example. another finding is using a three-year average to determine if final pension compensation. that was before the board and voters. that is sort of the general accepted method for -- i know what to say spiking because that assumes there are nefarious deeds going on. they may just be a person getting a promotion in their later years. what you want to do is ensure the compensation is paid at the highest level as possible. some of that can be dealt with through management, and i think we have done that, and we will do more. supervisor mar: thank you. let's move on to finding e1,

current employees vested in health benefits after 10 years, not pre funded but paid directly through the general fund. mercer consulting reported that the unfunded liability for health benefits was $400 million, and there are a number of different responses that partially disagree. ms. callahan? chief? >> good afternoon, supervisors. i am the deputy chief administration, san francisco fire. the fire department would like to comment that any increases to final pension-able compensation with the fire department are legitimate and would establish city-wide merit systems with practices. it increases to final pension compensation to be attributed to one promotion or act of assignments or through dhr and

civil service approved methods of exempt or permanent improvement from an eligible list or negotiate contract that increases the final pension compensation of the retiree does not occur with the deliberate purpose of increasing and employees retirement pension. supervisor mar: okay, thank you. and i am just reading from some of the responses from the mayor's office and human- resources that employees hired prior to january 1, 2009, after five years, retiree health care is not paid until 40% is paid by the department. if includes the city has a substantial underfunded liability. i think the responses are pretty straightforward. ms. callahan? >> dhr in the last several years has proposed in all of our negotiations with open contracts to have active employes

contribute towards retirement health obligations. it would be advised of the city attorney that proposition be was cast that we would not be able to legislate active employee contributions. so we learned we needed to do it through negotiations, and we have had small successes. in the era of wage concessions, it is difficult to get even more. it continues to be a priority for us. supervisor mar: thank you. ms. stevenson? >> also just a piece of information. as required as part of the obligations in reporting, we are working on estimating the unfunded health benefit liabilities, so we will have refreshed information and new actuarial projections, and the french report tickets issued this year. supervisor mar: thank you. and the last two