It’s almost accepted as an article of faith that killing pensions and replacing them with 401(k)-style retirements for most new employees will help the city of San Diego’s budget woes. The plan is the centerpiece of a high-profile ballot initiative planned for next June that its proponents, Mayor Jerry Sanders, Councilman Carl DeMaio and other Republican and business interests, touted as saving more than $2 billion when they announced it two months ago.

But an inconvenient detail has hovered over the measure for a while: 401(k)s may not do anything to affect San Diego’s massive pension deficit, and in the short term, force the city to pay more to fund it. That detail has become more inconvenient recently.

Closing the pension system to all new employees except for police officers and offering 401(k)s to everyone else would force the city to speed up its pension payments, said Mark Hovey, head of the San Diego City Employees’ Retirement System. It would cost the city $94 million more over the first six years, a new retirement system analysis says, at a time when the city’s budget continues to face incessant strain from its pension and other debts.

“The colossal problem for the city is trying to pay off that $2.1 billion pension liability,” Hovey said. “The 401(k) plan doesn’t address that.”

For now, backers are insisting 401(k)s will save money, but aren’t saying much else. They still have a year to make their case. When they do, they might not have to prove how much 401(k)s save, but whether they save anything at all.


We Stand Up for You. Will You Stand Up for Us?

To be sure, 401(k)s aren’t the only thing in the measure. Its other aspects, including freezing employees’ pay, likely will reduce the costs the retirement system is predicting will come with 401(k)s. But those changes could happen without adding 401(k)s to the mix. Further, 401(k)s, not pay freezes, are the measure’s crown jewel.

Over the past two months, the measure’s proponents have promised detailed cost savings estimates, which includes pension changes beyond 401(k)s. They aren’t ready yet.

“Developing long-term projections is a little bit more complicated than I anticipated,” said Lani Lutar, president and CEO of the San Diego County Taxpayers Association and a key supporter of the measure. “We are working on it.”

Should the measure qualify for the ballot, as is expected, it will be one of the most significant issues facing voters next June. Voters also will be choosing in a primary among a crowded field for the city’s next mayor.

The ballot measure already is looming large in the race. DeMaio and City Councilman Kevin Faulconer, both Republicans, helped write it, so they’re in support. (Faulconer has yet to decide if he’s running.) San Diego District Attorney Bonnie Dumanis, also a Republican, opposes it, saying firefighters shouldn’t have 401(k)s. The two presumptive Democrats in the race, U.S. Congressman Bob Filner and state Sen. Christine Kehoe, eventually are expected to oppose it, too.

But the lack of financial data is holding up the decision of Republican Assemblyman Nathan Fletcher. Fletcher was unavailable for an interview Friday, but his chief of staff confirmed the assemblyman wouldn’t make a decision about the measure at least until more financial data was available.

“A lot of the things that created the problem were politicians voted on proposals that were very popular that probably polled well, but hadn’t been thoroughly vetted and examined and gone through,” Fletcher told a local television station last weekend. “Of course I’ll weigh on in the local issues. We’ll weigh in on the statewide issues. But I think every leader should not do it until there’s been a full analysis.”

If the city offers new employees 401(k)s and closes its pension system to all employees but police officers, it will have to pay more for six years to comply with government accounting standards, said Hovey, the retirement system’s head. Those accelerated payments will save the city money in the following six years.

The retirement system’s actuary did not analyze the entire measure. Its other aspects could produce savings in the initial years, particularly the pay freeze, Hovey said.

“That’s significant,” he said.

Lutar said the retirement system’s data was important and planned to meet with Hovey prior to releasing the measure’s analysis. But she did not concede that any of the system’s assumptions were correct. Previously, DeMaio has said an acceleration wasn’t necessary and criticized Hovey for insisting it was.

Even the little financial information the ballot measure’s backers have released is suspect. More than a third of the savings estimated over the first five years came from a pension reform that’s largely been completed. Backers have said the measure makes that reform, eliminating pension offsets, permanent.

Lutar wouldn’t discuss anything else about the savings estimates, including if the measure will take credit for any cost-saving reforms already made.

She also didn’t have any timeframe for completing the full analysis.

“I wish I could give you a date but I can’t,” she said.

Please contact Liam Dillon directly at liam.dillon@voiceofsandiego.org or 619.550.5663 and follow him on Twitter: twitter.com/dillonliam.

    This article relates to: Elections, Government, News

    Written by Liam Dillon

    Liam Dillon is senior reporter and assistant editor for Voice of San Diego. He leads VOSD’s investigations and writes about how regular people interact with local government. What should he write about next? Please contact him directly at liam.dillon@voiceofsandiego.org or 619.550.5663.

    17 comments
    Gerald Hosenkamp
    Gerald Hosenkamp subscriber

    The core problem in SD and the state remains the same. Public employee unions "negotiate" with politicians whose elections they fund. And they get what they want. Until this devils bargain is addressed, the taxpayers will continue to bear the burden in the form of reduced services and increased "fees" and the state and city will continue to decline.

    GBH1
    GBH1

    The core problem in SD and the state remains the same. Public employee unions "negotiate" with politicians whose elections they fund. And they get what they want. Until this devils bargain is addressed, the taxpayers will continue to bear the burden in the form of reduced services and increased "fees" and the state and city will continue to decline.

    Jim Jones
    Jim Jones subscriber

    What San Diego needs is a ballot initiative that limits the combined pay and benefits of the public sector in any year from exceeding the private sector. After that is done you find that we still have public employees, and we save a lot of tax money.

    Jim Jones
    Jim Jones

    What San Diego needs is a ballot initiative that limits the combined pay and benefits of the public sector in any year from exceeding the private sector. After that is done you find that we still have public employees, and we save a lot of tax money.

    Fred Logan
    Fred Logan subscriber

    Had people ten years ago simply stepped up and said they made a mistake in funding pet projects for thier own good, when they should have been paying bills they agreed to, then this debate would not be happening.

    FredL29
    FredL29

    Had people ten years ago simply stepped up and said they made a mistake in funding pet projects for thier own good, when they should have been paying bills they agreed to, then this debate would not be happening.

    lifesaver1
    lifesaver1

    Eliminating a defined benefit pension, when other governments in California continue to provide one will place San Diego at a competitive disadvantage in hiring. The only way to make up for this disadvantage will be to provide higher pay (to balance the lack of a competitive pension), which will defeat the basic concept of saving money. There is no free lunch here.

    jskdn2
    jskdn2

    opportunity to exploit one.

    Mary Davis
    Mary Davis subscriber

    It seems like there is a lot of cart, and very little horse leading this pension-reform bandwagon. I think prudence would dictate that IRS & SS approval be garnered BEFORE the initiative is placed on the ballot, not afterwards. But maybe that is politics as usual - Bass Ackwards.

    vor73
    vor73

    It seems like there is a lot of cart, and very little horse leading this pension-reform bandwagon. I think prudence would dictate that IRS & SS approval be garnered BEFORE the initiative is placed on the ballot, not afterwards. But maybe that is politics as usual - Bass Ackwards.

    elviswiggle
    elviswiggle

    It is up to the employee to take some responsibility in how they allocate their 401K investments into appropriate asset classes. The employee should take responsibility in managing their retirement pension. I think all City employees (past and present) should be converted to this plan. No one should be getting amounts totaling up to over $200,000 a year for life when they should've been on a 401K type of plan in the first place and should've been taking responsibility in handling their finances (including their pension allocation) better. If the City had been using the 401K system in the first place, they wouldn't have an underfunded pension system that is their major source of debt and the biggest cause of their financial problems today.

    Jay Rogers
    Jay Rogers subscriber

    It is up to the employee to take some responsibility in how they allocate their 401K investments into appropriate asset classes. The employee should take responsibility in managing their retirement pension. I think all City employees (past and present) should be converted to this plan. No one should be getting amounts totaling up to over $200,000 a year for life when they should've been on a 401K type of plan in the first place and should've been taking responsibility in handling their finances (including their pension allocation) better. If the City had been using the 401K system in the first place, they wouldn't have an underfunded pension system that is their major source of debt and the biggest cause of their financial problems today.

    Augmented Ballot
    Augmented Ballot subscriber

    Last, just want to say I enjoyed Fletcher's comments. They were very sensible, and a subtle jab in the eye of DeMaio and SDCTA. Heh.

    Augmented Ballot
    Augmented Ballot

    Last, just want to say I enjoyed Fletcher's comments. They were very sensible, and a subtle jab in the eye of DeMaio and SDCTA. Heh.

    Bill Bradshaw
    Bill Bradshaw subscribermember

    Getting this Republican taxpayer to vote "yes" on the Sanders-Demaio-Faulconer scheme as currently described is going to be a tough sell. Instead of screwing around like this the city ought to get as many current employees off the payroll as possible NOW through outsourcing (Remember, the city attorney has told the mayor and council they don't need to go through the "managed competition" rigamarole). The problem is the cost of benefits for people now on the payroll, not those to be hired in the future. The benefit concessions made by current employees are insufficient to solve much of the problem, so the city has little choice. Let's roll!

    toulon
    toulon

    Getting this Republican taxpayer to vote "yes" on the Sanders-Demaio-Faulconer scheme as currently described is going to be a tough sell. Instead of screwing around like this the city ought to get as many current employees off the payroll as possible NOW through outsourcing (Remember, the city attorney has told the mayor and council they don't need to go through the "managed competition" rigamarole). The problem is the cost of benefits for people now on the payroll, not those to be hired in the future. The benefit concessions made by current employees are insufficient to solve much of the problem, so the city has little choice. Let's roll!