One More Pension Reform Signature

Bradley J. Fikes Bradley J. Fikes 29 Comments

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Carl DeMaio and pension reform supporters, Sunday, Sept. 25

Carl DeMaio and pension reform supporters, Sunday, Sept. 25

Here’s a photo I took of San Diego mayoral candidate Carl DeMaio and supporters collecting signatures for San Diego City pension reform at a supermarket in Del Mar Heights Sunday, Sept. 25.

After months of procrastination, I finally gave my signature there. So thank you, San Diego Firefighter Willie Alegre and colleagues, for helping galvanize my decision.

Over at San Diego CityBeat, the journalists of course oppose the measure. But one of their staffers made a revealing statement in the comments it appears the others accept: This issue will be decided by whether it qualifies for the ballot. If it qualifies, passage is assured. (I’d link to the CityBeat piece, but the site isn’t accessible now. I’ll put in a link when it is).

The CityBeat interpretation is that that the pension reform measure will pass if it qualifies for the ballot because it’s too complicated for voters to understand. (A nice way of saying the voters are stupid and gullible).

The other interpretation is that voters understand that San Diego’s pension system needs reform to restore the city to financial health.

In my opinion, opponents made a critical mistake by running ads on conservative talk show programs such as the Mike Slater show. The ads only reminded listeners that the pension reform initiative was out there.

And the content of the ads weren’t likely to go over well with listeners. Public safety officers, police, firefighters and lifeguards, are supposed to put the public safety above their own lives. Yet here comes a firefighter implying he puts his own financial security over public safety.

“Be fair and be safe. Refuse to sign,” Alegre said, ending the commercial with chilling menace.

This goes way beyond politics. It’s a threat to the public safety, from someone sworn to protect the public safety. And it dishonors the brave public safety officers who perform their duty, not for financial gain, but because it’s the right thing to do.

If the pension reform measure gets to the ballot, as now seems likely, opponents will have only themselves and their threats to blame.

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(DISCLAIMER: This is my opinion, not necessarily that of my employer, the North County Times).

 

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Comments 29

  1. Post
    Author

    Hi Kelly,

    Short answer, the shift from a defined-benefit pension plan to a defined-contribution 401-K plan will save the city money in the long term. And as CityBeat’s editorial admitted:
    “The measure attempts to lessen the problem by limiting the amount of salary used in calculating benefits for current employees. Frankly, we don’t take issue with that idea.”

  2. The shift from a defined benefit plan to a 401k doesn’t save any money and, actually, experts (including April Boling and Marcia Fritz) have said that that’s not the best route. Both Boling and Fritz have said publicly that DB plans are better. The switch to a 401(k) will mean closing the pension system to new hires. That will cost the city money initially ($40 or $50 million, though I need to check my notes). I talked to a professor from Boston College’s Center on Retirement Research who said that if the city were to introduce a true DB / DC hybrid plan, it wouldn’t require that initial up-front payment and would also decrease the risk to taxpayers.

    Capping pensionable pay is a separate provision in the measure. And, it will save money. The question is whether that could have been done without a ballot measure and whether doing it via ballot measure will trigger lawsuits.

  3. I’m not sure you can pick and choose provisions of the measure to determine savins/costs. Seems to me the measure needs to be read in it’s entirety as intended for the total presumed savings.

    Regarding pensionable pay and it being handled by the Council, I suspect most people believe such fundamental “reform” would have been handled by the Council with the unions.

    Re: lawsuits, they happen all the time between the city and the labor unions. Most, if not all, have nothing to do with ballot initiatives.

  4. The largest savings from this initiative is from the five-year pay freeze. Of course the initiative doesn’t guarantee that there will really be a five-year pay freeze…

  5. Post
    Author

    Kelly,
    I understand there will be start-up costs to the switchover, but I’m looking at the long term. I also find it hard to believe that defined benefit plans are less expensive. If that were the case, then why have companies abandoned them in favor of 401ks to control costs?

    Count me as skeptical, but also willing to consider any evidence you provide.

  6. The problem with retaining defined benefit pensions is that the unions will push 24/7 to up the benefit. That in itself is not a problem, but the fact that it can be implemented today with the cost deferred until tomorrow makes DB govt pension plans a CONSISTENT disaster. Over and over the politicians capitulate and provide such (usually RETROACTIVE) benefit increases — benefit increases that they usually profit from both directly and indirectly.

    Moreover, “tiered” DB plans are vulnerable to reversal. I’m getting some info together on the NYC pensions, which are now up to 5 tiers and headed for tier 6. Some of the tiers have had their benefits retroactively reinstated (essentially moved back into a higher tier), defeating the purpose of the tiers. BTW, note that just this reversal happened for the grocery stores as well (for health, not pensions, but the principle is the same) — private companies also are susceptible to such pressure.

    In essence, leaving reduced DB plans in place for new hires is like leaving a little cancer in place after surgery — it seldom goes well for the patient.

  7. Kelly,

    No one can definitively say whether or not the move to a 401k/DC from a DB plan under the CPR Initiative will cost more than the norm. Reason being, nobody knows what the cost to the city will be, as costs are merely capped under CPR. The actual costs are not outlined within the measure. Second, the unfunded liability under a switch to a 401k/DC does not increase, it’s merely a switch in the amortization of the debt. A freeze in pensionable pay (not a salary freeze) while possible and allowed under law, would never happen via the council either.

  8. I’ve yet to find any research that says 401(k)s are cost effective for government in comparison with a well-managed pension system. (There’s no evidence that the city’s fund is currently not well managed.) See the “conclusion” section of this report:

    http://crr.bc.edu/images/stories/Briefs/slp_3b.pdf

    Ayn: Have you read the ballot measure’s financial analysis? And, there have been significant reforms made when the city and unions have sat down at the negotiating table. Watch the video from July 22, 2008:

    http://www.sandiego.gov/mayor/news/2008.shtml

  9. A City Charter Amendment is needed to get rid of the Union’s Veto powers over the Mayor and City Council, that exists with City Charter Section 143.1. Getting rid of the Union’s Veto power will allow an unlimited amount of solutions that could be approved by the City Council majority.

    http://www.realpensionreform.com/home/index.php?option=com_content&view=article&id=78&Itemid=93

    Section 5. Article IX (Retirement) Section 143.1 of the San Diego City Charter is hereby amended as follows:

    No ordinance amending the retirement system which affects the benefits of any employee under such retirement system shall be adopted without the approval of a majority vote of the members of said system. No ordinance amending the retirement system which increases the benefits of any employee, legislative officer or elected official under such retirement system, with the exception of Cost of Living Adjustments, shall be adopted without the approval of a majority of those qualified electors voting on the matter. No ordinance amending the retirement system which affects the vested defined benefits of any retiree of such retirement system shall be adopted without the approval of a majority vote of the affected retirees of said retirement system.

    To the extent allowed by law, the requirement for a majority vote of employees and the requirement for a majority vote of retirees for adoption of an ordinance as described in this section shall sunset and be deemed unenforceable as of the effective date of this section. Unless required under a preexisting Memorandum of Understanding as of the effective date of this article, any city employee hired after September 1, 2012 shall not have a right to vote in any vote required under this Section.

  10. Richard,

    Under Prop. B, approved by voters in 2006, “any ordinance that amends the City’s retirement system by increasing the benefits of any employee, legislative officer or elected official shall not be adopted without approval of a majority of the qualified electors voting on the matter.”

  11. Post
    Author

    Kelly, let’s remember how the city got into this mess. Politicians turned defined the city’s defined benefit plans into Christmas trees, loading them up with unsustainable goodies.

    As Richard pointed out, as long as the city keeps DBPs, this temptation will remain. Turning them into defined contribution plans eliminates this threat to the city’s finances.

  12. Again, any increases in retirement benefits need to be approved by the voters. So, there’s no temptation there. A million things can happen under future city leadership. The question is whether what’s contained in CPR is the best solution. Not too long ago, two folks in your camp—Marcia Fritz and April Boling—were of the opinion that DB plans were better than DC. That fact brings up a whole lotta questions that need a good public vetting.

  13. Post
    Author

    Kelly,
    It’s always possible to underfund defined benefit plans with overly optimistic assumptions. Switching to defined-contribution plans makes that impossible.

    And I haven’t yet heard a convincing explanation of *why* defined benefit plans are financially safer for the city. I really don’t care who is in my putative “camp” or not, I just want an answer that makes sense.

  14. Kelly I think a VERY open question of whether the plan is well managed. For example, the city continues to make adjustments in pay (police raise last example) WITHOUT budgeting for the extra payments to the plan required. That is the real problem with DB plans – it requires holier than job administration to avoid the temptation to push liabilities into the future.

  15. Kelly – DB’s cause liabilities that reach decades into the future for municipalities. This nanny-state approach to retirement is based on certain assumptions that, when not realized, create havoc for municipalities and taxpayers who lose services like libraries, etc. etc.

    No thanks. A fair DC with contributions between employer and employees seems very reasonable to me.

  16. Bradley,

    There is no doubt that a defined contribution is financially safer for the City than the current defined benefit plan. I wonder though if you really want to make the argument that financial certainty is the only factor that the City should using when making its policy decisions.

  17. Post
    Author

    Hi Alger,
    I wouldn’t say financial certainty is the only factor the City should use. But in light of San Diego’s near-bankruptcy, I’d say it’s a factor that needs to be given much more emphasis.

    And what Erik said in the comments about the City adjusting payments without putting aside enough money for the changes is pretty outrageous, if it is true.

  18. Post
    Author

    Kelly,
    “For example, the city continues to make adjustments in pay (police raise last example) WITHOUT budgeting for the extra payments to the plan required.”

    Care to respond to this statement of Erik’s? If that’s true, it seems that Prop. B. can be ignored just by pretending that retirement benefit adjustments won’t increase costs. Maybe something for you to look into. I’m sure we can all agree that if that’s indeed happening, it’s wrong.

    Erik, what do Jerry Sanders and the City Council say about this? Is anyone suing the City over this?

  19. Kelly, a hybrid plan leaves in place a little DB cancer. Historically such cancer spreads over time.

    Yes, the citizens have the final say (they always do), but the proponents who profit from such expansion will vastly outspend pension expansion opponents.

    Follow the money — it’s the ongoing political problem of a concentration of benefits, with a dispersal of costs.

    Most of us here think that we need bulwarks against such threats. In contrast, you think we need a four-lane paved super-highway for government giveaways — to carry us to economic ruin.

    Honest difference of opinion.

  20. Post
    Author

    Kelly,

    I’ve downloaded the report you linked to and will read it during my lunch hour.

    What I fear from a hybrid plan is that *any* defined benefit portion would be open to abuse. If Erik is correct, then we can’t trust the city government not to play sleight-of-hand with the pay and pension formulas. Turning benefits entirely into defined contributions eliminates that possibility by definition.

    Another benefit of an entirely defined-contribution plan is that it would align the long-term economic interests of public employees with those of the vast majority of the public who pays their wages.

  21. Erik,

    The pension plan had (at least until recently) an assumed 4% annual salary raise built in to its formula. This assumption was recently reduced and was one of the big reasons that the ARC was reduced.

  22. Alger – I have to wrap my head around that. Essentially it seems the ARC has already the expectation of increased benefits – if we define that as ever increasing retirement pay. But you are right that it is “cooked in”. But brad – you are correct that the initiative apprarentlly does not require a vote on such raises (and resulting increased pension payments and liabilities).

  23. Erik,

    Pension benefits are based on final salary (actually now three years average). If an employee starts their career at $25K per year, the assumption is that their final salary will be higher, and therefore their pension will be based on that higher salary. I don’t see that as “ever increasing retirement pay” but I can see where you might.

    Try this as a simple alternative to the CPR being proposed: make it illegal for any negotiated pay raise to go into effect in any year that the pension fund is less than 90% funded (including the cost of any POB’s) and add to this a provision the City can pay no more than a fixed percentage of wages to the pension. Since pension benefits are based on wages, this provides a guaranteed self-correcting mechanism. Even better, it removes all incentive for labor to negotiate any ridiculous wage increases because this would necessarily drive down the pension funding ratio and the increases would not go into effect. It also removes incentive to “abuse” the pension system, because that would eliminate any employee raises for years and years.

  24. Erik,
    The overriding problem I see is that those in charge of the benefit formulas, i.e. city employees, are covered by the formulas. That is a built-in conflict of interest. And it appears to be a nice loophole that seriously undercuts Prop. B’s effectiveness.

    Kelly may be right in a purely theoretical sense that a mixed DB/DC plan makes sense. But academics such as those at Boston College who prepared the report she linked to appear to have left out the hazard of such a conflict of interest. At least I couldn’t find it discussed in the report. The closest it comes to discussing that point is when it says that politicians are prone to overpromise, leaving the costs to the future.

    I also remember how myopic politicians allegedly possessed of perfect visual acuity failed to heed Diann Shipione’s pension warnings.

    An entirely defined contribution pension plan eliminates the ability of city employees and elected officials to game the system.

  25. I find it interesting that you signed the initiative Brad. Not judging you, just found it interesting.

    I haven’t signed a ballot initiative in a decade. I would say I haven’t signed one ever, but I can’t remember whether I signed one as a freshman in college more than a decade ago. I didn’t even sign the dispensary ordinance repeal or Prop 19. I’m not registered with a party either.

    Shrug.

  26. Dave,

    As I wrote, I signed due to outrage at the anti-pension reform commercials. I haven’t signed petitions in years, but hearing the firefighters threaten public safety compelled me to act.

    To me, this went far beyond politics. I think any public safety officer who would put their own financial well-being above their sworn duties should be fired immediately. I’m appalled that the firefighters’ union has degenerated to this extent that they would threaten public safety. People who think like that are a menace and should never be given a position where they could endanger the public safety.

    Dave, this seems common sense to me. I hope you think the same way,

  27. Post
    Author

    Dave, the threat from the firefighters’ union to reduce public safety for their own financial benefit compelled me to sign. This is far beyond politics — anyone willing to violate the obligation to put the public safety first does not deserve to be a public safety officer. We should fire them immediately.

    I’m also perplexed that the firefighters could get away with this repulsive tactic. I wouldn’t trust my safety to such people. Would you?

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