Facts

The City of San Diego established a Presidential Leave/Benefit Program in 1989, which was codified in the San Diego Municipal Code in 1997 and amended by a Resolution in 2002. The San Diego City Council approved this 2002 Resolution by a unanimous vote confirming that the City had "met and conferred" with several of its City employee unions, including Plaintiff San Diego Municipal Employees Association (MEA), and agreed to the on-going participation of each union's elected president in the San Diego City Employees Retirement System (SDCERS) on the terms stated. Each of the legislative actions related to the City's Presidential Leave/Benefit Program was prepared by the City Attorney's Office and signed off on as to its form and legality before being adopted by the City Council.

According to these legislative actions, an elected union president's service while on an unpaid leave of absence from his or her City duties continued to be of value to the City, represented employees and the public. Thus, the City agreed that his or her continued participation in the City's defined benefit pension plan (i.e., SDCERS) was proper so long as the elected president's participation cost, covering both the employee and the City's obligations, were paid in full by the elected president or his/her union. SDCERS administered the City's Presidential Leave/Benefit Program without raising any concerns related to IRS rules or regulations applicable to the tax qualified status of the City's pension plan.

In reliance on these legislative actions and on SDCERS' knowledge and expertise as pension plan administrator, Judith M. Italiano participated in this Program while serving as MEA's elected President and all required payments were made as calculated by SDCERS based on Ms. Italiano's MEA-paid salary. The City Auditor thereafter confirmed that all required contributions had been made before SDCERS approved Ms. Italiano's service retirement based on 27.3 years of creditable service yielding a monthly pension allowance of $6,632 per month effective August 6, 2004. When Ms. Italiano retired, she relied on the finality and propriety of the pension she had earned.

In late 2007, SDCERS and the City entered into a Voluntary Compliance Agreement with the IRS, in which they agreed that Ms. Italiano's participation in the pension plan had been in error, because MEA was not a participating employer in the plan.

On December 21, 2007, an SDCERS staff representative telephoned Ms. Italiano to inform her that her monthly pension allowance would no longer be paid. The City declined to accept any responsibility for the loss of Ms. Italiano's promised pension.

Thereafter, SDCERS demanded that Ms. Italiano repay the pension plan for the gross amount of all benefits previously paid (despite the federal and state tax withholdings) plus 8% interest. At the time her pension benefit was summarily terminated, Ms. Italiano was a 61-year-old retiree with health and mobility problems due to multiple knee surgeries.

MEA and Italiano sued the City for damages for breach of contract, among other claims, and sued SDCERS for damages for breach of fiduciary duty, and intentional and negligent infliction of emotional distress.

The City and SDCERS cross-complained against each other and SDCERS cross-complained against Ms. Italiano for repayment of gross benefits paid with 8% interest accruing from August 6, 2004.

Result

After Judge Charles Hayes had overruled SDCERS' demurrer on immunity grounds and had denied SDCERS' motion for summary judgment, SDCERS and plaintiffs reached a settlement through mediation with the Hon. Lawrence Irving (Ret.). The total settlement was $700,000 with $251,000 of this amount being retained by SDCERS in full satisfaction of its cross-complaint against Ms. Italiano for repayment of pension benefits previously paid, and the remaining $448,000 being used to purchase an annuity for Ms. Italiano's benefit. Because the City had cross-complained against SDCERS for indemnity, SDCERS filed a motion for good faith settlement determination which Judge Joel Pressman granted on December 13, 2010. The City has challenged Judge Pressman's ruling by a petition for writ of mandate, which was filed on January 3, 2011. SDCERS and plaintiffs filed an informal letter brief in response at the Court's request on January 18, 2011. Meanwhile, on November 16, 2010, Judge Joel Pressman granted the City's motion for summary judgment on plaintiffs' breach of contract claim. In June 2010, Judge Hayes had previously granted summary adjudication in the City's favor on plaintiffs' tort claims based on immunity. No final judgment has yet been entered in the case.

Other Information

Mediator: Hon. Lawrence Irving (Ret.).