San Diego's City Council next week will take a close look at a born-again municipal pension system that’s projected to cost taxpayers more and more money for a while.
They're a long way from locking in the kind of savings that have been projected.
After voters passed Proposition B last year by a 2-to-1 majority, the city began to incur closing costs to shift its retirement system from 'defined benefit' pensions to 'defined contribution' plans, such as 401(k) accounts and annuities for all new hires except police officers.
"They pushed us into this thing, and we said all along it was going to cost more,” says Frank De Clercq, president of San Diego Fire Fighters Local 145. "So now it's coming to fruition. You've got a bigger liability that the city and taxpayers are facing … at a time right now when we have so many other needs.”
All this is happening under an interim defined contributions setup, agreed to by city employee unions, while Prop. B goes through state administrative proceedings and then the likelihood of wrangling in the courts -- which could drag on for years, not months.
Meantime, based on numbers crunched by the Cheiron actuarial consulting firm as of the benchmark date of June 30, 2012, the city is on the hook to pay $275 million into the retirement system on July 1st.
That's $44 million more than it paid for the current fiscal year to maintain roughly the same funding ratio -- assets to liabilities -- of just under 69 percent.
That payment is projected to peak at $322 million by fiscal year 2025 -- then drop to about one-fourth of that amount within four years later.
And while the retirement system actually made some money in the investment markets for the fiscal year ending last June 30th, it went on the books as an actuarial loss.
"It was a point-9 percent increase in the investments, versus what was assumed as the investment return of 7.5 percent,” explains Lisa Byrne, a fiscal and policy analyst for the city’s Independent Budget Analyst’s office. “So that was quite a big hit for the June 30th, 2012 valuation."
Fortunately, the fund rallied to a 14 percent gain for the 2012 calendar year.
But the real, long-term savings from Prop. B -- starting 11 fiscal years out -- project from a five-year freeze on employees' "pensionable" pay.
Taxpayer advocates say that's just what city management needs to bargain for.
"What we expect coming from this negotiation is that the mayor presents, and the council approves, a plan, a deal -- whether it be one year or five years -- that's in full compliance with Prop. B,” says Chris Cate, vice president of the San Diego County Taxpayers Assn. “That's what we expect, that's what the mayor has told us, and the mayor promised us following the passage of Prop. B."
But those expectations may be more realistic in terms of a one-year pensionable pay freeze, than five years.
And when it comes to wheeling and dealing at the bargaining table, Mayor Bob Filner is looking for backing from the City Council.
However, as he told reporters at an informal briefing on Wednesday: "These negotiations have just begun. But so far, the Council as a whole has not agreed to that five-year context. I wish they did.?
The Council is scheduled to take up the actuarial reports on Monday.