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Union Head Calls Pension Reform A Solution In Search Of A Problem

Audio

Aired 11/4/11

Michael Zucchet, general manager of the MEA, says shifting San Diego city workers to a 401K pension will only sabotage the city's hiring efforts.

The idea of giving 401K pensions to government workers is gaining popularity as a way to reduce cost and financial risk to cities and states. There's a ballot measure in the works that would make 401Ks a reality for new employees of the City of San Diego. But the unions want city workers to keep their guaranteed benefit pensions, especially when city employees don't receive social security benefits.

Michael Zucchet is a former city councilman, and he’s now general manager of the Municipal Employees Association, which represents “white collar” San Diego city workers. Zucchet was interviewed by KPBS Morning Edition host, Tom Fudge.

Interview with Michael Zucchet

Fudge: Supporters of the plan to shift new city employees to 401Ks say this is the way retirement plans are going, and cities like San Diego just have to get with the program. What’s wrong with that argument?

Zucchet: What’s wrong with that argument is that the costs that everybody associates with our pension plan do not come from employees that have not been hired yet. They come from the existing employees. So this is a solution to a problem that doesn’t exist. The pension for new hires in the city of San Diego has already been degraded to the worst public pension in the state of California.

Fudge: Why is Social Security such a big issue since the city may be going to a 401K.

Zucchet: The initiative backers, I think, understand that this is a political issue that is kind of a problem for them. For example a newly-hired fire fighter in San Diego is going to have a less secure retirement than a fast-food worker. The general thought is that the federal government has allowed entities like the city of San Diego to get out of it (Social Security) when, in exchange, employees have been covered by a defined benefit pension plan. Now that people are trying to take away the defined benefit pension plan, you’d think you would bring back Social Security. But no… the initiative backers say we don’t need that either.

Fudge: If they city of San Diego does not go to a defined contribution pension plan, what’s the alternative for keeping the pension plan from being such a burden on taxpayers?

Zucchet: Again… that’s already been done for new hires. New employees have none of the retirement program that have gained some notoriety in San Diego: DROP, retiree health, the supplemental savings plan, the purchase of service credit. Their defined benefit pension is very modest. The issue is with the existing debt and the existing employees.

Fudge: Some voters have been shocked by the size of some of the pensions of some retired city employees. Would you be in favor of a cap on benefits?

Zucchet: We would. And we would acknowledge that this is the part of the PR war we have lost badly. The Carl DeMaios of the town have done a good job of defining city employees as earning hundreds of thousands of dollars, and earning more in retirement than they do while they work. In fact, that’s just wrong. The average employee we represent, and we are the largest city labor union, makes $54,000 a year and earns $31,000 a year in retirement after working for the city for 26 years.

It’s not what you read on the front page of the newspaper. You read the extreme cases, who, by the way, are no union-represented employees. They are city managers, deputy city attorneys and the like.

Fudge: If this question of a 401K goes to the ballot in San Diego, and it looks like it will, how do you convince voters to reject it and continue to assume the financial risk of paying for city retirement pension, as they exist.

Zucchet: You know… Five years from now, when the job market turns around, for instance, and when fire fighters have a choice to join any jurisdiction in the state of California, with a defined benefit pension, or the city of San Diego without one, where do you think they’re going to choose?

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