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401K Supporter Says San Diego Must Cap Cost Of Pensions

Editor's note: This is a transcript of an interview.

Aired 11/4/11 on KPBS News.

Lani Lutar, with the San Diego County Taxpayers Association, says pension costs in San Diego are out of control, and the city has no choice but to switch to a 401K.

Some San Diego politicians, including Mayor Jerry Sanders, are backing a movement to change San Diego's municipal employees' pension from a guaranteed benefit plan to a guaranteed contribution plan, or a 401(k). We'll soon find out whether an initiative campaign to make the change gathered enough signatures to qualify for the June ballot. Lani Lutar is the head of the San Diego County Taxpayers Association, and she supports the change to a 401K. KPBS Morning Edition Host Tom Fudge interviewed Lutar on Friday's program.

Lani Lutar Interview

Fudge: Why do you and the mayor feel San Diego needs to move to a 401K?

Lutar: Well, for one, it will guarantee that taxpayer contributions to the city pension will be capped moving forward or those new employees which is really important when you consider the fact that we have a $2 billion pension unfunded liability right now. The system is clearly unsustainable. This will allow the city to get back on track.

Fudge: But some people say this will be very expensive in the short run, because new employees will no longer contribute to the existing retirement plan, which must be maintained and funded. Can you comment on that?

Lutar: I’m glad you asked the question because that is absolutely not true. Our analysis showed that this would result in savings in the short term and over the long run. Over the long run, it will save up to two billion dollars, and in the short run, in the first year alone it will save millions of dollars.

Fudge: How will it save millions of dollars?

Lutar: Because of transitioning to the 401K plan, combined with capping pensionable pay for five years.

Fudge: Unlike some other employees who have 401K plans, future city employees would not get Social Security. Given that, will the new plan be an adequate safety net, or will future retirement plans be entirely dependent on the performance of the stock market?

Lutar: This plan will not prevent future employees from re-entering Social Security, if that’s what they want to do. In fact right now, there’s nothing preventing the city from getting them to re-enter social security. This is something the employees, though the collective bargaining process, could choose to do. The reason we did not require employees to re-enter Social Security with this initiative is because Social Security, 10-20-30 years from now, could look very different from what it is today. We want to allow for that flexibility, in the interest of city employees.

Fudge: If this initiative gets on the ballot and is passed, the employer contribution to pensions, which in the future would be 401K’s would be 9.2 percent of salary, the same as it is today. If that’s the case, does that mean there’s no guaranteed savings in this plan, if the city is still putting in the same amount of money?

Lutar: Well, let’s be clear that when you have an unfunded liability the city may put in much more than its employees pension costs. When there are market losses, when councils approve retroactive pension benefits, for all the reasons that impact pension costs, we know that the city’s costs can be much higher than 9.2 percent.

Fudge: It sound like the major concern of the city here is the reduction in financial risk to the city…

Lutar: Yes, we want to make sure that, moving forward, the taxpayers’ costs are capped. Because when we talk about the city’s costs we’re really talking about the taxpayers’ costs.

Fudge: By the way, is 9.2 percent of salary to pay for retirement enough, to provide an adequate pension for retirees?

Lutar: When we’re talking about the 9.2 percent, we’re talking about the maximum amount the city would contribute to this defined contribution plan. We would hope the employees would make an additional contribution. So yes, we think that ‘s adequate. Absolutely.

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