San Jose Pension Reform

San Jose city leaders voted Tuesday to ask residents to decide on pension reform.

The council’s 8-to-3 vote approved a ballot measure asking city voters to decide on whether city employees should contribute more to their retirement plan and new employees’ plans should be more limited.

The debate has pitted Mayor Chuck Reed, who says the current pension system is unsustainable, against employee unions who say the reform would be unconstitutional.

Reed said last year that the city’s annual retirement costs quadrupled to $250 million in 2011 from $63 million in 2000. By 2016, the costs are expected to reach $400 million, according to the mayor.

City employee unions have tried to draw the Securities and Exchange Commission into the debate, filing a complaint alleging San Jose’s bond offering documents don’t paint the same dire picture Reed has portrayed to city voters.

The mayor is not alone. Cities across the state have been trying to find ways to reduce their pension costs while running into opposition from unions.

Fitch Ratings said in a November report that generous pension benefits locked into public employee union contracts, coupled with weak investment returns and declining interest rates, have expanded local governments’ unfunded pension deficits in California and across the country

Last month, Stockton, Calif., took initial steps towards bankruptcy by entering into a mediation process to try to reduce its debts, partly because of its high employee retirement costs.

California also may get involved. Gov. Jerry Brown has proposed a plan to help curb pension costs for both the state and local governments.

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