Editorial: Toward progressive pension reform

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It's entirely possible that San Francisco voters will see three different pension proposals on the November ballot. Public Defender Jeff Adachi, who failed to pass a harsh pension-reform plan last year, is determined to try again. A working group headed by investment banker Warren Hellman is working on a plan, and Sup. Sean Elsbernd expects some version of that to move forward. And organized labor may do its own initiative.

But before any of those efforts are finalized, it's worth understanding where this so-called crisis originated — and how to fashion a progressive approach to the issue.

The idea behind San Francisco's fixed-benefit system is simple. Every year, the city and it's employees contribute to a pension fund, which is invested under strict rules, and when an employee retires, he or she gets paid a predetermined amount out of that fund. Until the financial system imploded and the stock market crashed in 2008, San Francisco's pension fund was solid. The reserves more than covered expected payouts. In fact, the fund was so healthy, and growing so fast, that some years the city didn't have to contribute anything at all.

Under Mayors Willie Brown and Gavin Newsom, the city used its flush pension fund as a way to avoid tough decisions on employee pay. Instead of giving raises, for example, the city offered to pick up the contributions some workers were making to the fund (which would cost the city nothing as long as the stock market kept booming).

Now things aren't so rosy, and the city's having to put hundreds of millions a year into the fund to keep it solvent. For the record, that's not the fault of the city employees who negotiated their contracts in good faith — and who weren't players in the Wall Street greed and corruption that wrecked the economy. In fact, if the city had continued paying into the fund in good times, the costs would be far lower now.

The various pension proposals look at a wide range of approaches, but in essence, both Adachi and Hellman's group are going to ask city employees to put more of their paychecks into the pension fund. That's the equivalent of a pay cut — they'll be taking home less money for the same benefits they currently receive.

It's true that city employees now get better pensions than most private-sector workers (a result in part of the fact that corporate American, aided by Congress, shifted most retirement plans to the 401(k) model, which puts all the risk on the employees and leaves employers largely off the hook). And there's some horrendous abuse, particularly by senior police and fire staffers (former Police Chief Heather Fong is getting $229,000 a year for life, which is ridiculous).

It's also true that the average midlevel city worker gets a pension between $20,000 and $24,000 a year.

Labor has already given back some $500 million in concessions over the past four years (and most of that money has come from lower and midlevel workers) City programs and services have been cut, by most estimates, by close to $1 billion.

The city has raised only $90 million in new taxes.

The bottom line is that over the past four years, the rich and big corporations, which are radically undertaxed in our society, have given back almost nothing to the city, have felt almost no pain. Unless pension reform takes that into account, it won't be fair or acceptable.

The first element of any new pension plan should be progressive in scale: capping pensions at, say, $100,000 (or lower); eliminating pension spiking; and requiring high-paid employees to contribute a higher percentage to the fund than low-paid workers would make sense. Policy makers should treat this as what it is, a pay cut — and any cuts should fall disproportionately on those who are more able to afford it. Requiring the city to put its share into the fund every year, even if the market is booming, would help ease the pain in bad years.

But there should be no pension reform without tax reform. If San Francisco is going to ask its employees to do more to balance the local budget — and that probably has to happen — then city officials should be willing to ask the richest residents and businesses to share the pain too.

 

Comments

...but it is actually semi-sane which is a major improvement on the topic of employee benefits for SFBG...

Posted by Flowers on Mar. 29, 2011 @ 10:03 pm

public sectors workers have a totally different (DB, not DC) and far more generous pension plan than private sector workers.

When you say the city pays in, you mean the taxpayers pay in. So effectively, as a private sector worker, i have to fund both my own pension and those of public sector workers. While many public sector workers pay for neither.

Then to ask for us to pay more taxes so this differential may be maintained is deeply insulting.

So the reforms are obvious:

Switch all City workers onto a DC-type plan, that is funded in the same way as private-sector plans i.e. through employee contributions with a matching element from the City.

Everything else is just putting lipsstick on a pig.

Posted by TheDoc on Mar. 30, 2011 @ 11:47 am

Switch everyone to a DB plan because in retirement, expenses have nothing to do with the contributions one makes during one's work lifetime, rather with predictable expenses of living after working.

Corporate political power forced the US to abandon the DB model, and that was a big mistake.

I do not believe that there is another similarly economically situated country that relies on a casino to provide for retirement, most all provide modest defined benefit plans.

Many firms that have defined contribution plans also offer matching contributions, which are paid for by shareholders and ultimately by customers. So you are paying for some amount of DC retirement plans just by shopping.

-marc

Posted by marcos on Mar. 30, 2011 @ 12:20 pm

for decades now, both here and overseas. That pony ain't turning back.

So if we want a system that is equitable to all, government workers need to migrate to DC as well. Quite simply, we can't afford to go on as we are, which is why reform is now on everyone's mind.

If a private-sector bus driver is on a DC plan, why should a muni bus driver not be?

Posted by TheDoc on Mar. 30, 2011 @ 2:19 pm

There is nothing equitable about retirement insecurity and nothing secure about placing one's future in the hands of casino gamblers who win even when you lose.

-marc

Posted by marcos on Mar. 31, 2011 @ 10:29 am

retirement dolalrs that don't take undue risk. While the risk to the private sector of subsidizing insanely generous public sector pensions is a bigger risk.

Posted by TheDoc on Mar. 31, 2011 @ 2:53 pm

..."It's also true that the *average* midlevel city worker gets a pension between $20,000 and $24,000 a year."

Can you back this up- it's not even close? There is a reason SFERs conceals this type of info like state secrets- the #s are big.

The average pension of a career retiree for Contra Costa County was $85,500 in 2009. You're trying to tell us the SF County average retiree pension is $24,000 in 2011? Uh, no.

And those labor "concessions" you reference ($500 million), well the last round of $235 million was temporary and will disappear this year with only $3 million remaining in permanent savings for dental insurance. See recent budget committee hearings.

...and Heather Fong is not collecting $229,000 "for life." She received a bonus COLA of 3.5% in January- yes a bonus after the pension fund lost billions in 2008. She will receive periodic bonus COLAs and regular COLAs throughout her retirement.

Lastly, you should actually read the details of Adachi's latest plan since it mirrors what you have proposed.

Posted by Flowers on Mar. 31, 2011 @ 9:59 am

Yep, the pension after 20 years of service at age 50 is about $25K, slightly more than unemployment.

But the City Dysfunctional Family is falling all over itself, during these times of scarcity, to ensure that Ed Lee has a landing pad after this mayoral term is up so that he can further increase his already six figure retirement package.

-marc

Posted by marcos on Mar. 31, 2011 @ 10:27 am

Interesting comment if it made any sense. No City employees are eligible at 50. Are we talking a about another City??

Posted by Flowers on Mar. 31, 2011 @ 11:29 am

You need to study up the public pension system in greater depth before posing as an expert on its reform, okay?

-marc

Posted by marcos on Mar. 31, 2011 @ 11:49 am

The SF Police and Fire retirement age is 55, Miscellaneous is 62...read up. Back to the point, the editorial claimed the SF "average" retiree was $20,000. It's simply not true. Sure there are some at this level who maybe did not max out at 65% (about 25 years) and were relatively low wage earners but this is the exception not the rule or "average." SF career retirees in 2010 are collecting a pension around $90,000 on average. At some point, I gather SFERs will have to release these figures since other counties have.

As for this:

..."There is nothing equitable about retirement insecurity and nothing secure about placing one's future in the hands of casino gamblers who win even when you lose."

You do realize that City retirees control the pension fund and are CHOOSING to invest in Wall Street/casino gamblers, no one is forcing them to. And yes, surprise surprise surprise - the stock market can go down. It is interesting to see public employees rail againt "evil" Wall Street and then turn around and invest their retirement savings in it...

Posted by Flowers on Mar. 31, 2011 @ 1:27 pm