Mayor Proposes Major Changes To City Worker Pensions
San Diego Mayor Jerry Sanders and Councilmember Kevin Faulconer unveiled a proposed ballot measure this week that would make major changes to the city's pension system. We discuss key elements of the proposal, and discuss the impact it could have on city workers and the budget deficit.
David King, editor and founder of San Diego Newsroom
Bob Kittle, director of news planning and content for KUSI
John Warren, editor and publisher of San Diego Voice & Viewpoint
This is a rush transcript created by a contractor for KPBS to improve accessibility for the deaf and hard-of-hearing. Please refer to the media file as the formal record of this interview. Opinions expressed by guests during interviews reflect the guest’s individual views and do not necessarily represent those of KPBS staff, members or its sponsors.
ALISON ST. JOHN: It's a promise that Mayor Sanders made when he first ran to office to introduce a new kind of pension for city employees and this week he says he is going to put it to the voters. Should new public employees no longer get traditional guaranteed pensions but join the private sector retirees who are being tossed around by Wall Street fluctuations? What do you think about the pension reform plan the Mayor and Councilmember Faulconer. We'd like to hear from you. (888)895‑5727. So David start us off here with a bit of an outline of what the Mayor and Faulconer are suggesting and tell us how significant it is in your view.
D. KING: The Mayor and Kevin Faulconer would move all new city employees into 401(K) type plan with the exception of public safety employee ‑police fire and lifeguards. The distinction between Carl DeMaio's plan and the Mayor and Faulconer's plan is that Carl DeMaio would include both public safety employees all new ones in the 401(K) type plan and take them out of a pension plan. And also cap pensionable pay so people would only earn pension benefits based on their base salaries. The Mayor and Kevin Faulconer have a different approach in terms of containing costs in the immediate term by setting a five year salary cap that the city's total payroll expense will not go up over the next five years.
ALISON ST. JOHN: So in fact we heard from the mayor and Faulconer yesterday they announced their plan, and Councilman Carl DeMaio will formally announce his official plan for a ballot initiative next week I understand. But you're right this is something we need to talk about, the difference between the two plans.
D. KING: Right now it creates a little confusion and it will create confusion when people go to vote, but the net result of this I think is it's a good thing. We have one-upmanship going on here. And the mayor and Kevin Faulconer have added more cost savings into their plan because of the pressure they met from Carl DeMaio. In this political environment it is likely both will receive majority support. If they both make it to the ballot ‑‑ if there is enough money raised to get both on the ballot, it's likely both would receive enough to pass and then higher vote getter would become the law.
ALISON ST. JOHN: Bob, Mayor Sanders was on Charlie Rose last week with an impressive table full of mayors do you think this particular initiative is precedent setting? Would it be taking the lead in terms of ‑‑
B. KITTLE: Certainly it's precedent sitting in California to require public sector workers to have 401(K) plans like we have in the private sector instead of the defined benefit plan. In that sense it certainly is. And I think what Carl is doing is going several steps further. Kevin Faulconer did I think shatter a taboo this week when they said look there is no reason for city workers to have pensions that are better than the taxpayer who are providing those pensions. And frankly for fifty years at least public sector workers were deemed to have better pensions. It was sort of part of the job. You got a better pension, you got retire earlier, and you got a bigger retirement check. And that taboo has been challenged, and I think the voters if given the chance will overwhelming reject the idea that city employees deserve better pensions than people in the private sector.
ALISON ST. JOHN: Well, John should we be cheering at the dismantling of a system of paying benefits that taxpayers in the private sector wish they had? Is this a case of sour grapes when we would be voting counter the interests of the middle class?
J. WARREN: I think we should be cheering the dismantling of this system. And it's unfortunate that the city took advantage of a period of time where there are dollars in the pension fun and decided to raid that and create all kinds of mutations. For instance up to a few years ago before the pension crisis kicked in many retirees were getting a 13th check, they were getting a bonus check at the end of the year. Twelve monthly checks and an additional check on top of that. Now I found it very interesting that since yesterday's official declaration by the Mayor and Kevin Faulconer that some entities feel very strongly that they don't go far enough. This whole idea of public employees, i.e. police and fire being protected as opposed to DeMaio would have them put into the same category where they would not have the level of protections that the Mayor is offering. I also think there is some harm here with the revelation that came out in terms of the two salary increases that the Mayor gave.
ALISON ST. JOHN: Yes I was going to ask you about that. Is the city showing leadership?
J. WARREN: You are telling people to bite the bullet, incoming employees, yet here is the mayor giving one person a 30 thousand dollar increase, the other 20. That's 50 thousand dollars and the justification being their duties are increased. But when we look at the workforce in America everybody's duties have been increased in terms of this recession and fewer people working. And the council left their own aids out of it
ALISON ST. JOHN: (888)895‑5727 we've Michael on the line Michael thanks for joining the editors at the Roundtable.
MICHAEL: Thank you very much for the topic and for the opportunity to ask a question. I was wondering if the panel could give an opinion on whether or not they think this program should include the return of Social Security to public employees as they are making a comparison to the private sector, private sector employers pay seven and a half eight percent into a Social Security fund to fund the Social Security for those employees that the private sector, and the public sector negotiated and gave that up back in the late '70s and '80s. Is that a part of the plan, or will in fact public employees have that much less of a program?
ALISON ST. JOHN: Good yes Michael David has the answer for you.
D. KING: He is right all employees that are moved into a 401(K) type plan that lose the defined benefit pension will be part of the Social Security retirement program.
ALISON ST. JOHN: So in fact up until now what appear to be very generous pensions have also been making up for the fact that public employees do not have any Social Security and this will change under the new plan.
D. KING: Two observations. I believe the contribution will be about six percent to Social Security if they move into the 401(K) plan. But let's consider that many people based on the diverse nature of their work experience already have Social Security investments. And what has happened is those who ended up in a plan like the city has where you no longer have Social Security, they make contributions that they really won't get, as I understand, the benefit on. And here we have a situation where the six percent is going to help those people meet their required number of quarters for Social Security which in turn will be a factor augmenting their retirement.
ALISON ST. JOHN: I understand there are some analysts who say this may not save the city money. Do you give any credence to that?
D. KING: In the short‑term there is not a big savings because the tax payers have to pay the employers' half of the Social Security, the seven and a half or it's not been reduced one percentage point temporarily. But over the long term it does produce enormous savings. Here is the reason why. Today the taxpayer assumes all of the risk for any loss in the retirement fund. So during the recession when the assets declined, the taxpayers have to make up all of it. Under a 401(K) plan, you get what is there. It's your account and that's it. There is no guaranteed pay out it's whatever it there. So the risk really shifts to the employee which is the way it is in the private sector
ALISON ST. JOHN: So Bob what do you think about the Mayor's plan which would exclude the public safety departments from this plan, that police and fire would still have their guaranteed benefits
B. KITTLE: Police and fire would. They are still an enormous part of the cost of the pension fund. The drawback to the Mayor's plan is it does not extend that savings to police and fire and life guards. You can make a good argument that police and fire and life guards may provide a better to the City and so maybe they need some benefits. If you consider that the risk that they take for their lives that so the of thing. But I don't think it makes sense to exclude them from the 401(K) approach
ALISON ST. JOHN: Any of the three of you disagree with that?
D. KING: In terms of recruiting I think it is a genuine issue with police. It is not with fire. So why do we put police and fire together just because they are both public safety? If the real issue is recruiting, it's a non‑issue with fire. That cuts away with the honesty of that argument. If police and fire protect public safety, pay them more today. Neither a retired police officer or retired librarian protects anyone when they are retired and playing golf or laying by the pool. It doesn't make any difference how much you are paying them later in life, they're not protecting public safety then. If we need to pay them more today to keep them, pay them more today based on the value of their services.
ALISON ST. JOHN: (888)895‑5727 is our number and Laurie from Clairemont is on the line.
LAURIE: Yes can someone explain how if you pull the new hires out of the public pension fund and they pay into a private plan, who will continue to pay into the public pension that the City intentionally underfunded over time, and how will they make up for that difference with the current retirees pulling out of the fund?
ALISON ST. JOHN: Excellent question.
B. KITTLE: That is a good question. It means the new hires under a 401(K) are no longer contributing any of their paycheck to the pension fund. But it also means they are not a liability they are zero liability for the existing defined benefit plan. So over time the taxpayer's burden declines as more and more workers are hired and more workers leave, to die actually, and leave the retirement system.
ALISON ST. JOHN: Has anyone calculated how long ‑‑ if you look at it in terms of a curve seems like it might quite a long time.
B. KITTLE: It is a gradual increase. Carl DeMaio said his broader plan could save about 300 million dollars over the first decade along with other elements. The Mayor has an actuarial study of his plan but he has not released it. So the saving there, I'm not sure of.
ALISON ST. JOHN: I wanted to ask about this issue about eliminating the city charter law that requires city workers to vote on any changes to benefits which would be part of the Mayor's initiative. This is something that emerged from the woodwork, it seems to me. I hadn't heard of this before that the city employees get to vote on any proposed changes to their benefits. How significant do you think that element is of the proposal?
J. WARREN: When I heard that and I have seen that before it sounds like labor really pulled coup here in terms of a sweetheart deal. I think that should be repealed and the repeal of that should not be looked at in the same context as the attack we see elsewhere in terms of collective bargaining. I think in this particular instance with what we're trying to do it makes a great deal of sense. I want to make snore observation as well. I don't believe that we are not going to have candidates for police or fire or other jobs if we change the pay scale. The whole labor market operates in terms of a free flow where people come to jobs based on availability and if they want the jobs, and I don't believe there is a whole defined segment of the population that will not go into public safety under any circumstances unless they're able to get what is currently on the table.
B. KITTLE: I think John is absolute right. My own view is that people who go into public safety are young people. You don't become a police officer in your 40s. These people want the job. They are committed to being a fire fighter or a police officer or a life guard. I think they do it because they are committed to the job. I don't think they do it because in 25 years they can retire early.
ALISON ST. JOHN: What about the question of retention? I think that is the thing that has really been a bugaboo is that the City pays a lot of money, millions of dollars on training and they leave to go somewhere with a better benefit.
B. KITTLE: As David was saying, fire fighters aren't able to move as easily because they don't their seniority with them. But police officers do. That is a legitimate question to ask. Would you if you were trained by the City of San Diego to be a police officer and after a couple of years you could get a better deal in Chula Vista maybe you would move.
ALISON ST. JOHN: We have seen that happening already. I wondered why the City can't have some kind of a deal in the contract whereby you have to stay with the City for a certain amount of time once the City has trained you.
J. WARREN: That is not going to happen again as it has done in the past because every city has the same problems. Chula Vista, National City all of them have the same problems in terms of budget. So it's no longer a matter of being able to pick up and move and who is going to offer the best deal. There is no best deal out there at this point and that is going to be an incentive for people to stay where they are.
ALISON ST. JOHN: We've got to take a break here. Stay with us. We're continuing this discussion with John Warren of San Diego Voice & Viewpoint, Bob Kittle of KUSI and David King of the San Diego Newsroom. I'm Alison St. John. We'll be right back.
ALISON ST. JOHN: You're back at the Editor's Roundtable with David King, John Warren and Bob Kittle talking about being a bit of a breakthrough this week in terms of proposals for reforming the City's pension plans. I wanted to ask the editors about what they thought about a related issue, which is the City attorney Jan Goldsmith had attempted to reach like a global solution with labor unions over the ongoing struggle about what actually they are vested benefits. It appears that fell short; it sort of collapsed this week. David why do you think the city attorney even proposed such a thing if he didn't have an idea that would work?
D. KING: 99 times out of 100 people are better off settling a case than letting a judge come with a decision for it. There are more lawsuits you can count and the amount of money being burned on litigation. There is one case in place now set to be heard about whether city employees have to contribute equally to make up for investment losses and the City has a really good chance winning that case. Then you have leverage and come to the table and say, here is my case where I'm likely to prevail, here are your other cases but let's sit down together and try and sort something out so we don't leave it up to the judge to come out with a meat ax and come out with a solution for us. And you've got all these different cases that you're likely to get results that are hard to reconcile. It's the right thing to do to come together and try and work out a compromise and lay all this litigation to bed. All the proposals from Carl DeMaio and the Mayor deal with new employees. We still have the existing employees and the big burden we are carrying today. That doesn't go away, this 2.1 billion dollar unfunded pension liability. The only thing that deal with that is the ongoing litigation and defining what the benefits are today for the existing employees who have vested benefits.
ALISON ST. JOHN: Bob what about this issue ‑‑ the question of whether city employees should be responsible partly for the vacillations on Wall Street. It would be nice in retirees in general could use that argument when Wall Street reduces their pension funds to dust but ‑
BOB: KITTLE: Well, ironically the city employees benefit when there are what used to be called excess earnings. The 13th check is evidence of the excess earnings when the pension fund performed better than projected. They took those extra earnings and gave it in a 13th check to the employees. But if investments declined as they have in the last couple of years, the workers had no obligation to make up that loss. All the burden shifted to the taxpayers. So Jan Goldsmith's lawsuit which appears to be succeeding establishes that under the city charter city workers should contribute with taxpayers essentially equally, and that includes losses as well as all other aspects of the pension fund. If Jan Goldsmith prevails that will produce very significant savings to taxpayers.
ALISON ST. JOHN: John just as a final question part of the reason San Diego has such bad deficit is because it under funded the plan rather than anything else. So is it fair to take it out on the employees now?
J. WARREN: I don't think they are taking it out on the employees. I think what Jan is doing is very significant compared to his predecessor. Mike Aguirre ran up all kinds of bills in terms of sue, sue, sue. If Jan is able to get people together and consolidate, then that's a savings to the city in the middle of a budget crisis and the employees shouldn't be anything but happy because it means we are still trying to save jobs. And if we are able to save money we can reduce how many we have to lay off. So the labor attitude has to change and come in line with let us all live, and not I just want my share. I think what Jan did is open a door for some discussion in that area.
ALISON ST. JOHN: I'm sure we will be talking a lot more about this issue in the coming months, especially if we have two competing ballot measures on the ballot to make up our minds up about.