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 voter 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 findings. i will read them both. f1, there are three elected by the bargaining unit, one commissioner appointed by the board of supervisors, one of the three appointed positions has been vacant six months. finding f2 is minutes from the board meeting record attendance representing the public are absent, the interest of the public is eroded. the findings are pretty straightforward. is there a response from the department heads? mr. emilio? >> passionate response on this one, supervisor. with respect to the board members, the civil grand jury

has, first of all, mischaracterized the very basic fundamental role of a board member. we have seven board members coming from the areas that you mentioned -- elected, appointed to the board of supervisors. each of the seven, they are exactly the same responsibility. they have a soul and undivided loyalty to act in the best interests of the members and their beneficiaries. there are no "public interests" members. secondly, there were a number of vacancies on the boardñi of, and the mayor hasñi subsequent to ts report filled them. we nowçó have seven full positions. the third thing that was mentioned, it is not as detailed as it was in some of the underpinnings, are the efforts of our board members, in addition to the monthly board meetings which they reflect, there was absolutely no

recognition or acknowledgement of the fact that our board, but the board of supervisors, has a huge committee structure resulting in probably double the amount of meetings on top of board meetings. there was no reflection of any of theñi work or efforts at the committee's undertake doing the board's work as well, and we wanted to point that out to you. supervisor mar: okay, thank you. anything else on the findings? colleagues? we have a number of recommendations. i would just read off the board of supervisorsçó response. we are required to respond to a1, b1, b2,ñr b3, c1, c2, e1, f, f2. i'm wondering if we need to go one by one or just call generally for the department's responses for the specific recommendations on the reports? colleagues, is that ok?

so from the recommendations, maybe i could just go through the first several. a1, b1, b2, b3, there are a number of recommendations made by the civil grand jury. i would ask if any of the department heads would like to respond to any of those? it looks like a1 requires further analysis, according to the mayor's office responseb1, b2, b3 have a number of different responses that have already been implemented from b1 to b2, suggestions disagreed will not be implemented, already implemented will not be implemented. that is from b2. maybe we can go to that once and there's some disagreement from the recommendation. b2 is on the sciu local

agreement and on the flop, and the recommendation was dhr should not enter into agreements with unions that increase pension obligations without voter approval. they should engage the actuary to put it any pension compensation. there is a little bit of a difference in their responses. ms. callahan? and i think a response from dhr has already implemented will not be implemented. am i am sorry, -- >> i am sorry, on the finding b2? supervisor mar: 1 the agreement. >> it would be, in our view, in violation of our obligations to negotiate under the charter and under state law.

where we have to send people to the bargaining table who are authorized to negotiate and make an agreement, and we would not beñr able to complete that process. and meet our obligations if we were to run every proposal through professional actuary. we cannot do it, and it is not done anywhere. we think we are meeting the intent of working with the retirement system. this does not have an impact on the pension obligations. supervisor mar: thank you. supervisor chu? supervisor chu: i know there are a number of recommendations the board is charged to respond to. one of them that i was interested in meeting with the department specifically is recommendation d1. this is the one that talks about san francisco should take steps to curb abuses from

pension spiking by eliminating the final pension income and employe can climb on retirement from pension pyramiding. the jury suggest the three-year formula, limiting the final pension compensation to 120% of the rate paid, independent review of the comptroller disallowing employes from drawing pensions from two and tinias city jobs, and pension compensation should not include separate pay from different pay types, known as pension pyramiding. >> you actuallyñr missed one. they also recommend that we do a three-year average to determine final compensation. supervisor chu: yes. >> supervisors, without getting on coli redundant, i would say the three-year average -- th