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San Diego Could Pay Millions More To Pension Next Year

Aired 9/13/12 on KPBS News.

Turmoil in the international financial markets and changing retirement benefits mean San Diego could owe significantly more to its pension fund next year.

— Turmoil in the international financial markets and changing retirement benefits mean San Diego could owe significantly more to its pension fund next year.

The San Diego City Employees Retirement System (SDCERS) assumed an annual investment return of 7.5 percent for the city’s pension fund in fiscal year 2012. But a preliminary analysis shows the fund earned just 0.3 percent.

SDCERS CEO Mark Hovey said a final analysis would be available in December or January, but if those numbers hold up, San Diego could owe an additional $5 million to $10 million on its pension payment next year. The Annual Required Contribution (ARC) is currently estimated at about $236 million.

But that’s not the only increase San Diego could see. Hovey said transitioning from a pension fund to a 401(k) system for most new employees could also cost millions next year as the city begins closing out its pension fund.

“The governmental accounting standards that apply to closed plans would suggest that you need amortize the pension deficit over a faster repayment schedule,” Hovey said. “And that would have the effect, all other things constant, of increasing the city’s ARC next year by $25 million to $30 million.”

Together, these two factors could add $30 million to $40 million onto next year’s pension payment. However, Hovey said after about six years, the city will start seeing savings associated with switching to a 401(k) retirement system. Supporters of the switch, which voters approved in June, have always maintained the measure would save San Diego money in the long run.

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