The Deferred Retirement Option Program, or DROP, allows eligible retirement-age municipal employees to continue to work for the city for five years while monthly pension payments are funneled into an investment account.
Employees taking part in DROP are essentially collecting their retirement and salary at the same time.
Mayor Jerry Sanders has argued the DROP program is too costly and proposed abandoning it. DROP was shut off to new hires in 2005.
The unions maintain that DROP cannot be changed without approval by a majority of San Diego City Employees' Retirement System members.
In his memo, City Attorney Jan Goldsmith said the ordinance creating DROP in 1997 never took effect because the municipal labor unions did not get enough of their members to vote to approve it.
"Since DROP was never formally adopted as a benefit under the retirement system, there is no need to conduct a vote under section 143.1 to eliminate it," Goldsmith wrote.
Sanders' office filed a lawsuit in April seeking to force the San Diego Police Officers Association to negotiate on DROP, something the union has refused to do, arguing that the benefit is vested.
In a statement, the SDPOA said it is in the process of reviewing Goldsmith's legal opinion.
"In the meantime, the city may wish to consider the words of the California Supreme Court: `What integrity would be left in government if government itself could attack the integrity of its own agreements,"' said Michael Conger, SDPOA's lawyer.
"We expect the city to honor its promises," he said. "The SDPOA and its members will honor theirs."
A pension system actuary estimated that eliminating DROP citywide would reduce San Diego's $2 billion pension shortfall by as much as $350 million.