San Francisco Mayor Unveils Pension Reform Proposal

April 8, 2011 ( – San Francisco Mayor Ed Lee presented a tentative plan to unions aimed to rein in the city’s ballooning retirement costs.

The San Francisco Chronicle reports that under Lee’s plan, employees’ contributions would be set year-to-year, depending on what percentage of salaries the city had to pay toward pensions, according to participants in the meeting with the unions. The mayor’s office isn’t divulging how high the employees’ contribution could theoretically reach, but said the plan means employees will share in the good times and bad.  

The news report said currently, most of the 26,000 city workers pay 7.5% of their paychecks toward pensions, while others pay nothing and some pay as much as 9%. During years in which the city’s pension fund performs well, the city has had to pay nothing toward worker pensions. But since the recession, the city’s costs are spiraling.   

This year, the city is paying 14% of salaries – or $357 million – toward pensions. Next year, that figure will rise to 18% or $422 million. By 2014, the city’s contribution is expected to hit $800 million, the controller’s office said.   

Lee’s plan also would require all employees to pay a percentage of their paychecks into a health care trust fund, those in the meeting said, according to the Chronicle.  

The plan would raise the retirement age for new hires, although Lee’s staff declined to say how high. Currently, employees can retire with some benefits at 50 or full benefits at 55 for public safety officers and 62 for everybody else.   

The plan bases pension benefits for new hires on their average salary for their final three years of employment, rather than the current two – a change designed to limit “spiking,” where workers inflate their incomes at the end of their careers to bump up their pension payments. The plan also would bar new employees from counting premium pay for special assignments toward their pensions.  

Pensions would be capped at the current IRS limit of $195,000 a year. The city now makes up the difference out of departments’ budgets for retirees due more than that.  

Lee hopes to reach a compromise to serve as the basis for a November ballot measure, but at least some union officials were disappointed with the proposal.  

According to the Chronicle, except for the method of calculating employees’ pension contributions, Public Defender Jeff Adachi has submitted a proposal similar to Lee’s. Adachi’s plan would require all employees to pay at least 7.5% and for public safety officers to pay 10% (see San Francisco Labor Unions Sue to Stop Pension Ballot Measure).  

Those numbers would rise when the pension fund is performing poorly, but would do so on a sliding scale. The lowest earners would never pay more than 7.5%, while the highest earners could pay as much as 15%. Lee is opposed to a sliding scale, saying high earners are already paying more money toward their pensions because of their larger salaries.