As Mayor Ed Lee strives to craft a consensus pension reform measure for the November ballot, resolving debate over the pension contribution rates of existing city workers is paramount.
How much those rates should increase and how they should fluctuate based on The City’s annual contribution rate remain chief sticking points.
Labor leaders who are part of financier Warren Hellman’s working group on pension reform are pushing a contribution rate that would increase somewhere between 2 and 4 percent. Details of their proposal remain under discussion.
The group’s proposal for new hires would increase retirement ages by two to four years, base pension calculations on an employee’s final three years of salary rather than the final two and cap all pensions at $160,000. Group officials say their proposal would generate $100 million in savings for fiscal year 2012-13 and about $1.3 billion over 30 years.
Part of the pitch is a lengthening of the time frame over which the pension fund must make up losses incurred by its investment portfolio. The union proposes increasing the current five-year window to 10 years. Without this change, recession-related losses will force the city to greatly increase its pension contributions.
Since city workers have been asked to give up pay to help balance the budget in eight of the past 10 years, increasing contribution rates for current workers is a huge issue. Labor leader Bob Muscat said a rate increase higher than 4 percent “frankly isn’t fair.”
However, a measure being pushed by Public Defender Jeff Adachi goes much further. Adachi’s measure could increase pension rates by as much as 8.5 percent, depending upon the amount The City is contributing at the time.
Employees earning less than $49,999 a year would be exempt from increases above the existing 7.5 percent. But workers making more than $90,000 would see their contributions increase by 3 to 7 percent a year, and those making in excess of $200,000 would pay an extra 4.5 to 8.5 percent, depending on The City’s contribution.
A rate increase of 1 percent would generate an additional $24 million a year, based on a $2.4 billion payroll.
City officials and labor leaders say they expect a consensus measure with the support of Lee and a majority of the Board of Supervisors by the May 24 deadline.
Projected spending is expected to double in just a few years.
$357 million Fiscal year 2010-11
$422 million Fiscal year 2011-12
$537 million Fiscal year 2012-13
$675 million Fiscal year 2013-14
$796 million Fiscal year 2014-15
Source: Controller’s Office