The San Diego city retirement board has awarded former labor leader Judie Italiano a $700,000 settlement, despite legal rulings that she wasn’t entitled to anything.
Italiano sued the city and the pension fund for $1.8 million, after an IRS determination found her pension payments were improper and violated tax laws. Italiano sought to have her 22 years as head of the Municipal Employees Union count towards city pension benefits in addition to the nine years she worked for the city as a typist.
The IRS ruled that the pension system could not pay the additional benefits because they were barred under rules that grant tax advantages to employers and employees that sponsor or are part of pension funds.
U.S. Superior Court Judge Joel Pressman agreed, saying any payment was “clearly not legally necessary.” In a ruling last month, Pressman said that the city never approved the arrangement giving Italiano credit for years as the union leader, and was only obligated to pay her for the years she worked as a city employee.
Despite the IRS and Superior Court rulings, the pension board negotiated the settlement with the union, agreeing to the $700,000 settlement. Italiano won’t receive the full amount, since she was already overpaid by the pension system by $250,000. The balance will be used to purchase an annuity that will pay her income for the rest of her life.
The settlement was referred back to Judge Pressman, who approved it, saying he had no choice in the matter once the parties agreed. “This court does not see this as a good faith settlement,” he wrote in a tentative ruling. “It is a settlement crafted to give judicial cover to an agreement based on prior illegal acts. This court is not inclined to grant that cover. If the parties choose, the settlement can go forward but without this court’s good faith determination.”
The city’s attorney general’s office also said the deal was not negotiated in good faith, and it didn’t make any sense to settle based on the court’s ruling.
The head of the San Diego City Employee’s Retirement System, Mark Sullivan, defended the settlement saying the court ruling only cleared the city from liability, and Italiano would still be able to continue to sue the pension fund for additional benefits. He said the settlement was about the amount that the fund might pay to defend itself in the matter.
The city’s pension fund currently has a deficit of over $2 billion, accumulated over the last 10 years from investment losses and insufficient contributions from workers and the city. Some critics say that the only way to prevent the obligation from forcing the city to cut services to the bone is for the city to declare bankruptcy, enabling officials to reset union contracts.