San Diego Mayor Jerry Sanders will present the pension reform proposals he wants to put on the November ballot to a city council committee today. At the heart of Sanders’ plan is a change the State of Alaska has already made to its public employee pensions. KPBS reporter Alison St John has more on how it’s working up there. Most of us don’t want to think too hard about our own pension plans, never mind about the city of San Diego’s. But a radical change to the city pension plan is likely to be on the November ballot, so let’s look at why Sanders thinks it’s so important.
Sanders: There is not a pension plan in the country, unless it’s a 401k strictly, that is not having some type of difficult, and the problem is you can’t underfund these things and then let people retire early and let them live until they are 85 or 90 or 95 years old. There simply is not enough money to do that .
Sanders wants to break the mold of the “defined benefit,” or DB pension plan -- that’s where retirees get a guaranteed benefit every month, however long they live. The mayor wants to change the plan so part of the pension benefit depends on how much money the employees contributed while they were working. That’s called a “defined contribution” or DC plan. The DC plan shifts the risk of IF there’ll be enough money to live on in retirement from the city - to the employee.
It turns out the State of Alaska already switched to a DC pension plan in 2005. That’s because it had something San Diego is only too familiar with: a billion dollar unfunded pension liability. Alaska Senator Burt Stedman, a Republican, spearheaded the push to make the change.
Stedman: The reform has brought under control creation, for the most part, of new unfunded liabilities going forward, but we’re still struggling.
Alaska’s unfunded liability, $6 billion, was six times bigger than San Diego’s, and their General Fund is about three times the size. So the state was in a tight spot. But some people think Alaska’s Republican dominated legislature was overly influenced by the Bush Administration to make a change that hits at the heart of financial security for retirees.
Jim Duncan heads the union representing 8,000 Alaskan state and municipal white collar workers.
Duncan : It was a political reaction more than really taking a look at it in a reasonable rational fashion. It was about the same time when there was talk about privatization of social security on the federal level, and the White House even sent letters of support of moving to a defined contributions system.
McLauchlin: There’s no defined benefit, and my wages are too low as compared with the private sector to compensate me enough to save my way, to invest my way to retirement.
Senator Stedman says it’s too soon to know if defined contribution pensions are affecting recruitment and retention.
Stedman : Now, that is yet to be fully fleshed out, but we haven’t seen any analysis that shows that.
Stedman says employees might like that they can now take their pension funds with them when they leave public employment. Jim Duncan says that’s not a good thing, because people take their training and experience and move on.
Duncan: The turnover rate is increasing: just in our union alone it’s gone from 20% to about 30% since the defined contribution plan has been put into place, and I think it really is a very serious problem .. recruitment and retention.
So, could pension reform leave San Diego struggling to hire good help? Mayor Sanders’ plan would be different from Alaska’s. It would be a hybrid plan, part defined contribution or DC, and part defined benefit, DB. That’s because city workers don’t qualify for Social Security so Sanders would leave them some safety net.
Whatever is decided this year, pension expert Roger Lowenstein says San Diego needs to think carefully about pensions.
Lowenstein: Since they are essentially irreversible…you really have to be careful when you fund them. It’s not like hiring another policeman, you can always lay off someone and reduce the force if there is less crime than you thought. But pension expenses are forever.
This week’s San Diego city council committee will consider how to handle the Mayor’s pension initiative when it comes before the full council in July.
Alison St John, KPBS News.
