San Diego and its major employee unions have agreed on a compromise reform plan that would reduce pensions for new workers and avert a battle over a pension reform ballot measure that was to go before voters in November.

Republican Mayor Jerry Sanders and Democratic City Council President Scott Peters both support the measure, which would save the city $23 million a year when fully implemented. It would reduce pensions for new workers who begin work after June 30, 2009.

The savings come from a variety of tweaks to the current systems, including reduction of the multiplier used to calculate pension benefits and a reduction in the cap on pension payments. Currently, a worker can earn a pension from the city’s defined-benefit plan that equals 90% of his or her highest annual salary. Under the new plan, the cap would be lowered to 80% and would be applied to the average of the worker’s three highest years of pay.

The plan also creates a defined-contribution retirement plan that would transfer some investment risk to workers from the city. It would reduce payments for workers who retire early. And it would create a trust fund for retiree health care with matching payments from both workers and the city.

“The plan will help us save a substantial amount of money,” Sanders said at a press conference. “This is a very fair compromise for both the taxpayers and future city employees.”

By agreeing to a compromise measure with city unions, San Diego avoids the cost of a charter election and the cost of defending itself against lawsuits challenging the charter amendment, the mayor said. The deal does not apply to public safety workers.

San Diego has struggled for years to get a grip on its pension costs. The city was sanctioned by the Securities and Exchange Commission in 2006 for failing to disclose a $1.4 billion unfunded pension liability to bond investors in 2002 and 2003.

The furor led to the resignation of then-Mayor Dick Murphy in 2005 and to SEC fraud charges against five former top city officials this spring. San Diego has been locked out of the public municipal bond market since the scandal and hopes to return to the market later this year.

Unions had refused to agree to smaller pensions, but they consented after Sanders and Peters last month teamed up to push a charter amendment that would have rewritten the city’s pensions without their input.

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