San Diego and IRS Hold Talks on Public Pension Crisis

The San Diego Union Tribune reports:

San Diego could be on the hook much sooner than originally thought for nearly $100 million owed to the city's employee pension system, which is in talks with the Internal Revenue Service over how to maintain the retirement plan's tax-exempt status.

That could pose a substantial problem for a city that has dramatically clamped down on expenses in recent years because of growing retirement obligations and the daunting prospect of funding a billion-dollar backlog of work on aging streets, pipes and sewers.

Pension board President Thomas Hebrank said fears about the $100 million debt are unfounded. He said IRS officials have assured system administrators that they accept that the money does not need to be repaid on an accelerated schedule.

In addition, Hebrank said, the fund could be a month away from receiving the all-clear from the IRS on the tax exemption, which is required if city employees are to continue enjoying tax benefits on their savings.

City Attorney Michael Aguirre criticized the pension system's administration for not warning the city in March that the IRS had, at least temporarily, expressed reservations.

“We are relying on them as part of our internal controls and it's not a reliable administration,” Aguirre said.

The disagreement stems from the city's 20-year plan to pay off the pension system's $1 billion unfunded liability. The IRS warned system officials in March that it is not appropriate to consider the $100 million as part of that total.

Instead, the agency indicated that the sum should be paid at a faster rate, according to correspondence between the system and the IRS obtained by The San Diego Union-Tribune. At one point, the agency says, “Five years is just too long,” and counters with 18 months.

San Diego could be the future for a lot of municipalities with pension problems.