The city of San Diego was sued by the San Diego County Taxpayers Association, which alleged that the city entered into a "quid pro quo" agreement that allowed it to underfund the San Diego City Employees' Retirement System in exchange for increasing employee benefits. The charges relate to agreements the city negotiated in spring 2002 with unions representing the city, according to the suit. At the same time, the city made an agreement with the pension fund allowing the city to make smaller contributions than were actuarially required. The suit claims that the deal violated California's conflict of interest laws because five pension board members are city employees who personally gained from the benefits increase.
The fund was 65.8% funded as of June 30, the end of the $3.6 billion fund's 2004 fiscal year, and its unfunded liability is $1.37 billion, according to a preliminary actuarial report by Gabriel, Roeder, Smith. The fund was 67% funded in fiscal 2003, with an unfunded liability of $1.16 billion.