SD Mayor Proposes Retirement Plan Revisions

March 5, 2008 (PLANSPONSOR.COM) - San Diego Mayor Jerry Sanders has proposed a restructuring of the city's troubled pension system with changes to both the defined benefit and defined contribution portions.

In announcing the plan, Sanders asserted the changes could one day slash the city’s pension costs by $25 million annually. The expected long-term annual costs for all non-public-safety workers hired after January 1, 2009, would be reduced from 16% of pay to 8.5% of pay, the city said.

Police officers and firefighters would be exempt; new hires in those classifications would continue to receive benefits under the current rules.

“(The plan will have a) positive impact on the City’s financial health by having an affordable retirement plan with more predictable future costs,” Sanders said in a fact sheet released by his office. “Over time, a greater portion of tax dollars can be re-directed to basic City services and infrastructure upgrades.”

Sanders prominently pointed to the proposal’s provision that eliminates early retirement subsidies, which he says will encourage employees to keep working longer.

According to a San Diego Union-Tribune report, non-public-safety employees would no longer be able to collect pensions that exceed their annual salaries, and they would have to work longer to reach the top benefit level.

In addition, their annual benefit would not be based on their final year of salary before retirement – a factor that critics fear has led to abuse – but on a three-year average of pay.

For instance, under current benefits, a city employee hired at age 35 can retire at 55 with two-thirds of his last salary. That would be cut to 27% under the Sanders plan.

The Sanders plan changes both the fixed and matching contribution portions of the DC component to a pre-tax basis. The fixed contribution portion also would add an annuity option, according to the Sanders fact sheet.

In making the announcement, Sanders acknowledged the savings are years away and depend on the agreement of three unions during upcoming contract talks, the Union-Tribune report said.

The city’s long-term retirement deficit once exceeded $1.4 billion. It has fallen to $1.2 billion, but pension expenses have soared. The annual contribution, $165 million this year, is what Sanders hopes to trim in the future if his plan is accepted, the newspaper report said.

The Sanders fact sheet is at