Village to Village by Paul Hatfield, Jan. 26, 2010

I am grateful to have had the opportunity to discuss a few subjects with City Attorney Trutanich.  Curt Livesay, Chief Legal Advisor, was also present.

Each of the three subjects deserves its own post.  Hope to have the other two finished later tonight or tomorrow morning.

It was also good to see Jane Usher.  We chatted briefly before the meeting.  I could sense her relief as a result of today’s final approval of the medical marijuana ordinance.  However, somehow I feel today’s passage was the end of a chapter and not the whole novel.

So here’s Part 1:  The Pension Crisis

City Attorney Trutanich is as upset with the city’s unfunded liability as anyone.  His take on the crisis and remedies are nuanced as you might expect from his position as City Attorney, or any attorney for that matter. He believes in the sanctity of contracts and appeared reluctant to void  current labor agreements.  As he told me, “would you trust someone who violated the terms of your contract?”

However, he is not against seeking concessions and recognizes that employee contributions to plans can be renegotiated, for an interim or long-term period. He also expressed interest in shifting to defined contribution plans, but there was no time to elaborate.

Time did not permit discussing bankruptcy.  As you would expect, that’s a subject that needs input from pros.  However, I would like to devote an entire session with him at another time to cover the subject in general terms.

What he suggested as a possible remedy for the pension crisis, or at least a partial remedy, was a civil suit against the actuaries responsible for the retirement plan’s assumptions.  He clearly indicated that a suit was being readied.  He characterized the actions of the city’s actuaries as “fraud,” specifically referring to the assumption of an eight-percent return on investment, year after year.

He expressed frustration. The gist of his remarks was how could the city keep falling for that promise?

I performed some quick and dirty research about litigation against actuaries afterwards. I  found a paper by the National Association of State Retirement Administrators (NASRA).  Here’s the basic concern the Association raised:

“In the past, lawsuits against actuarial firms have been rare. In recent years, the actuarial profession has become a more frequent target of lawsuits by pension plans that claimed damages in the billions of dollars due to alleged negligence on the part of their consulting actuaries.”

I could not determine the date of the document, nor could I locate it in NASRA’s website but I have to assume it is of contemporary vintage.  You can read the whole document here: Actuarylimitationsonliabilities,

What is the prognosis of success for this lawsuit?

You got me, but Trutanich must be weighing it.  Something this big and apparently somewhat untested deserves the highest level of scrutiny.

What about the timing?  We did not discuss that, but I have to assume as with any significant case, it will take time to unfold, and time is a precious commodity in our current crisis.

I look forward to a return engagement with Nuch.  There is so much more to cover.