City considers replacing employee pensions with 401(k)-like plans
By Joe Britton
City News ServiceInstead of guaranteed pensions, new city employees would be offered more volatile 401(k)-style retirement plans under a ballot measure proposed Friday by San Diego Mayor Jerry Sanders.
The mayor said he and Councilman Kevin Faulconer will begin a signature-gathering effort to get the proposal on the ballot in the next regularly scheduled city election in June 2012.
“As our pension obligations continue to threaten our long-term fiscal stability, it’s clear more must be done,” Sanders said.
“The notion that all public employees should have a richer retirement benefit than the taxpayers they serve, while now also enjoying comparable pay and greater job security, is thoroughly outdated,” he said. “What’s worse, is it is bleeding our resources at a level that is unsustainable.”
The proposed ballot measure would get rid of what are known as defined benefit pensions for new hires, including elected officials, and instead offer them a 401(k)-style plan similar to those in the private sector. Workers would contribute a certain amount to an account and the city would match it.
Many 401(k) contributions are invested in mutual funds or other financial instruments, meaning workers’ retirement funds could rise or fall based on the stock market.
Acknowledging the risk of 401(k) plans, Sanders said his proposal would exempt public safety workers and allow them to keep guaranteed pensions “because I believe we cannot afford to lose top-notch prospective officers and firefighters to other cities.”
The mayor said it was unclear how much the change would reduce San Diego’s $2 billion pension shortfall.
Councilman Carl DeMaio, who recently released his own plan to deal with San Diego’s budget crisis, said the mayor’s proposal was a step in the right direction, but does not go far enough.
“We need to see comprehensive reform of existing pension obligations,” DeMaio said.
DeMaio said Sanders’ plan does nothing to address the “outrageous and unsustainable” pension benefits existing city employees are set to receive when they retire.
Lorena Gonzalez, head of the San Diego Labor Council, blasted the plan.
“Mayor Sanders knows that San Diego city workers don’t receive Social Security because of a decision years ago by the city to stop paying into it,” Gonzalez said. “Now, he wants new hires to only have Wall Street-dependent 401(k)s upon their retirement.”
“What is a retiree to do when the market crashes and seniors lose nearly all value of that 401(k), without the safety net of Social Security?” she asked. “I guess Mayor Sanders would simply let them live on cat food.”
The Labor Council said it delivered a can of cat food to the mayor’s office Friday.
Sanders said his office is “exploring” the Social Security issue.
Sanders’ proposal comes only weeks after San Diego voters overwhelmingly rejected Proposition D, which would have raised the city’s sales tax by a half-cent.
The mayor pledged to move ahead with the 10 fiscal and pension reforms outlined in Proposition D, including implementing the managed competition outsourcing program and selling the Miramar Landfill.
Sanders also outlined steps he plans to take to help close San Diego’s projected $73 million budget shortfall in the coming fiscal year, including further streamlining city government, eliminating free trash collection for homes on private streets, pursuing franchising opportunities at golf courses and airports and eliminating non-critical operations, such as community plan updates.