ALAMEDA, Calif. — A civil jury in Sacramento rejected professional negligence claims last week against attorneys and a pension consultant involved in setting up a controversial pension system for Sacramento City Unified School District administrators.
The district sued a pension consultant who worked on the arrangement, Myles Margady, and attorneys David Girard and Allen Vinson, charging all three with professional negligence and accusing the attorneys of breaching their fiduciary duty.
The district claimed $4.2 million in damages. After three days of deliberations, a jury rejected all of the charges on Oct. 18.
The case stems from the school district’s creation in 2000 of the California Administrative Services Authority, a special pension system for its non-union administrators.
CASA allowed them to sidestep both the California Public Employees’ Retirement System and the Social Security system.
It came under fire from the district’s rank-and-file unions and other activists who argued that the setup was legally questionable and allowed a handful of executives to enrich themselves at the district’s expense, notably its superintendent at the time, James Sweeney, and its chief financial officer, Laura Bruno. The school board granted both additional years-of-service credits toward their pensions.
CASA formally hired the district administrators, then leased their services back to the district.
About 100 Sacramento administrators were enrolled in CASA, along with a smaller number of administrators in the Yolo County Office of Education, which partnered with Sacramento City USD to create the authority.
The school district unwound the program in 2004, after hiring consultants MGT of America, who prepared an audit that questioned the legal status of the arrangement as well of the handling of proceeds from $6.3 million of pension obligation bonds issued for CASA in 2002.
The decision to create CASA was also challenged in a report from the county’s civil grand jury, and by CalPERS.
According to the school district’s most recent annual financial statement, for the period ending June 30, 2009, the district reached a settlement agreement with CalPERS in 2007, in which it agreed to retroactively pay the retirement system for employee contributions that were due during the period those employees were part of CASA.
Sacramento City USD was the obligor of CASA’s pension obligation bonds. According to its financial statement, the district has continued to make full payments on the outstanding CASA pension obligation bonds.
The statement said that the authority’s assets were under the control of the state Superior Court, which has been asked to settle the various claims on the assets and the validity of the CASA plan.
The district has the right to prepay the bond obligation at any time, but does not want to do so because legal uncertainties mean it cannot be assured of obtaining the bond proceeds and other CASA assets, according to the financial statement.
“The district’s liability to pay enhanced retirement benefits to members of CASA will depend on legal determinations as to the validity of the CASA plan and the benefits promised thereunder,” the statement said.
“The district does not believe that the final outcome after all obligations are satisfied will impair the district’s ability to repay the bonds in a timely manner,” it said.
A school district spokesman did not return a phone call from a reporter Friday.
On Monday, the spokesman told the Sacramento Bee that school district officials were evaluating a possible appeal in its case against the attorneys and pension consultant.
Ambac Assurance Corp. insures the pension obligation bonds.