OPINION In today’s failing economy, with double-digit unemployment and huge government deficits, progressives have a strong interest in ensuring that San Francisco’s pension system remains viable.
After years of working and contributing a percentage of their income to a pension fund, city employees receive a guaranteed annual pension based on an employee’s years of service and his or her pay level at retirement. In the private sector, most employees participate in a 401(k)-type of retirement plan, in which the pension is based on the amount contributed to the fund.
Under the city charter, the city is only required to pay into the pension fund when its liabilities exceed its income. When the fund loses money, as it has in recent years, the city is required to make up the difference.
In 2005, investments losses brought the fund below the break-even mark, requiring the city to pay $175 million in retiree pension and health premiums. Today, that number has grown to $525 million — an increase of 200 percent. Two years from now, in 2013, the amount will grow to $675 million, eclipsing what it costs to run San Francisco General Hospital for one year.
While headlines reporting pensioners who receive $100,000 or more raise the public’s ire, most retired city workers receive modest pensions. Still, there are abuses to the pension system that must be eliminated. A recent civil grand jury report found that some police and firefighters engage in pension “spiking” by promoting employees in their last year of service to increase the amount of their pensions. That practice has cost the city $132 million.
The question of how to address the city’s growing pension liability is now before the Board of Supervisors. A proposed charter amendment would change the contribution levels for police and fire employees hired after July 2010 from 7.5 percent to 9 percent and base pensions on the last three years of the employee’s salary to reduce pension spiking.
Some argue that the measure unfairly targets labor and city workers by eliminating pension formulas that have been used for decades. But with the city’s $522 million budget deficit, if San Francisco’s pension problem isn’t fixed, escalating pension costs will ultimately force city officials to confront this choice: make huge service cuts and layoffs or be unable to meet the city’s retirement obligations to its retired workers. That’s why we have to act now.
Other pension funds have faced this reality. One San Francisco union leader whose fund is paid by its workers told me that his union voted to reduce future pension benefits while increasing the amount of employees’ contributions. “It was a bitter pill, but we knew we had to do it,” he said.
The proposed charter amendment doesn’t go this far and only has a minimal impact on the city’s present pension liabilities since it only changes contribution levels for future employees. However, if the amendment reaches the June ballot, these modest reforms should not become a wedge issue.
Having a sustainable pension fund that protects the futures of workers without bankrupting the city is a progressive value. Progressives should also support ending pension abuses that only benefit a small number of workers at the expense of taxpayers and other workers who contribute to the fund. Pension reform is one step, among others, that must be taken to restore San Francisco’s fiscal stability.
Jeff Adachi is San Francisco’s public defender.