San Diego Mayor Jerry Sanders and City Council President Scott Peters have agreed to a compromise pension reform plan that could eventually cut the city’s share of employee pension payments in half.

The proposal would reduce the city’s pension costs by reducing benefits to workers hired after July 1, 2009. Current workers would keep their benefits.

The city’s payments would decrease to 8.75% of payrolls from 16.1%. The plan would also reduce the incentive for workers to retire early by cutting pensions for workers who retire before age 60.

The proposal is a charter amendment and must be approved by both the City Council and voters. Peters and Sanders are aiming to place the measure on the November ballot.

San Diego, California’s second-largest city, is recovering from a pension scandal that locked it out of the public bond market for four years. Its unfunded pension liability was $1.4 billion at the end of fiscal 2007.

The Securities and Exchange Commission sanctioned the city in 2006 for failing to disclose its pension liability to investors in bonds in 2002 and 2003. The SEC charged five former top city officials with pension fraud earlier this year.

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