San Diego Mayor Jerry Sanders this week asked the City Council to submit to voters in November a pension reform plan that would drastically cut benefits for new workers.
Pension reform is a major issue in San Diego, California’s second-largest city, because it faces a $1.2 billion unfunded pension liability, and the failure to disclose its exploding pension liabilities in 2002 and 2003 led to Securities and Exchange Commission sanctions. The pension scandal also cost most of the city’s senior leadership their jobs and left San Diego locked out of the public bond market for four years.
Sanders’ proposal would go into effect July 1, 2009, and save the city $53.6 million over its first 11 years. He said it would cut pension costs for non-public safety workers in half when fully implemented.
Under the proposal, new workers would be offered both a traditional defined benefit pension plan and a 401(k)-style defined contribution plan. But the plans would be much less generous than the city’s current offerings.
For example, Sanders would cap payments from the defined benefit plan at 75% of average compensation over a worker’s final three years of employment, versus a cap of 90% of the final year’s salary in the current plan. He would reduce the benefit multiplier to 2.3% of salary per year of service for a worker who retires at age 65 from 2.8%. He would also cut the city’s contribution to the defined contribution pension to 2% from a little over 6%.
All told, the plan would cut the pension benefits for a worker who retires at age 65 with 30 years of service to 80.7% of his final average salary from 119%.
Sanders’ last pension reform proposal failed in the City Council with lawmakers deadlocked in a 4-to-4 vote. The mayor this week asked the body to let voters decide the issue at the polls on Nov. 4.