The City could be facing an additional $60 million annually in employee pension contributions, due to the unpredictability of the stock market.
On Dec. 14, San Francisco’s Retirement Board voted 3-2 to reduce forecasts of annual investment returns from 7.75 to 7.5 percent — a small drop in expectations that translates to tens of millions more in contributions from The City and its employees to be phased in over three years. However, the board cannot seem to come to terms on how to best predict the future.
Pension costs have exploded in recent years, prompting voters in November to pass Proposition C, which is aimed at reducing The City’s costs by obligating employees to contribute more of a share to the fund. If The City was forced to pay more as a result of drab stock market projections, it could be a burden that results in deeper annual deficits, more budget cuts and larger employee contributions.
But two members of the seven-member board were absent during the December vote, and one of them has called for a reconsideration of the matter at the board’s meeting today. Board President Al Casciato — who voted against the reduction in December — isn’t expected to appear at today’s meeting, creating a potential 3-3 tied-vote scenario.
In case of a tie, according to the board’s executive assistant, the figure would be restored to 7.75 percent because the motion to reconsider the matter essentially erases the original vote in anticipation of an updated decision. The prospect of waiting longer for a definitive projection was not well received by Supervisor Sean Elsbernd, a member of the Retirement Board.
“The City needs to know what that number is earlier in the calendar year, so they can move forward with next year’s budget,” Elsbernd said. “That’s not just something you throw into a computer and crunch the numbers.”
Mayor Ed Lee said Monday that he’d rather see the projections return to the 7.75 percentage that was established before the December vote.
“I have no control over the Retirement Board and never want to get politically involved,” the mayor said. “But it was going to make things harder for us in budgeting and finding an extra $60 million [if the board lowered the expected rate of return].”
Still, Elsbernd said The City needs to be more conservative when it comes to planning to pay for pensions in the long run, which is why he has supported the more conservative rate of return.
“I suppose I’ll give the mayor the benefit of the doubt and assume that he’s doing what’s in the best interests of The City,” Elsbernd said. “My interest in this is fiduciary, and as a Retirement Board member, I have to think about what’s best for the retirement of employees.”