Monday, May 28, 2012
Voters in San Diego will decide in a few days whether the city should end its traditional pension system for most new workers and switch to a 401(k). But if Proposition B passes, it’ll raise another big question for the city.
SAN DIEGO The latest battle in what's been called San Diego’s Pensions Wars will takes place at the ballot box on June 5th. To hold down future pension costs, Proposition B seeks to impose a five-year pay freeze on current employees.
It would provide most new hires with a 401(k) in which a retiree’s income depends on how well their investments perform. Mayor Jerry Sanders is one of the major backers of Proposition B. He said San Diego’s pensions trouble started because city leaders made bad decisions.
"This takes that out of that realm. In a 401(k)-style system you have to make the payment each year. You can never put that off for future generations," he said. "And I think our council has been very responsive. But a few councils caved and gave way too much and didn’t pay the bills and that pushed it off onto the future generations and that simply can’t work any longer"
The Pension wars began in the mid-90s. San Diego wanted money to build a new ballpark and host an expensive National Republican Convention. City leaders convinced the retirement fund board to accept lower pension payments in return for the promise of increased retiree benefits. In 2002 San Diego underfunded its retirement system again. The moves left the city with a pension deficit of more than $1 billion. Next year’s payment is expected to eat up more than 20 percent of the city’s general fund.
Proposition B is the Republican answer to the crisis. But there’s a hitch, San Diego is not enrolled in Social Security. In the 1980s employees voted to opt because they were promised a good pension and health care in retirement.
Michael Zucchet with the Municipal Employees Association, the city’s white-collar union, said those benefits have been slashed or eliminated over the years. He said to make more cuts when workers have no Social Security to fall back on raises a red flag.
"So the deal that was cut with employees, so to speak, and the reason they were willing to give up Social Security is now gone," he said. "Add that to the fact that Proposition B intends to take away even a defined benefit pension, and there’s really some grave fairness issues here."
If Proposition B passes, the city may be required to re-enroll in Social Security.
San Diego State Social Work Professor Thom Reilly as written a book on city pensions. He said San Diego is in a unique spot.
"It does have pretty significant implication, nationally," he said. "I don’t know of any other place in the United Stated, public or private employers, where they only offer a 401(k)."
Reilly said if the federal government lets San Diego stay out of Social Security it could open up the door for other employers who want to leave the system. He said the government can’t afford to lose any more contributing workers when it’s trying to extend the life of Social Security.
San Diego Chief Operating Officer Jay Goldstone said whether or not the city rejoins Social Security is a matter for negotiations with the unions. The affected workers would vote on whether to rejoin the system and the timing of the vote would be decided through negotiations. Whatever happens, Goldstone knows San Diego is being watched by cities across California and beyond.
"A lot of it is just because this is pension reform, Social Security aside," he said.
With just days until the election, recent polls show strong support for Proposition B as the pension wars reach their peak.