Progressive pension reform

Pub date March 29, 2011

EDITORIAL 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.