Prop. D: Ballooning pension costs reeled in 

A step toward reducing burgeoning pension costs for city workers was approved by voters.

Proposition D included a number of changes to draw down expenses by increasing retirement-contribution rates for some workers, changing the pension formula for new hires and ensuring money can be socked away during strong economic times for retiree health benefits.

Under the measure, the retirement-contribution rate will increase from 7.5  to 9 percent for newly hired public safety workers. Other workers will continue to pay a 7.5 percent contribution. Currently, pensions are based on the highest pay earned in a year. The measure’s formula calculates it on the average of the highest two years.

In years when San Francisco’s contribution to the retirement fund is less than expected — offset by strong returns on investments — The City would put the difference into a special health care trust fund used to pay for retired health workers’ benefit costs. The City has a $4 billion future cost for retiree health benefits. 

The measure was introduced by Supervisor Sean Elsbernd with the support of Mayor Gavin Newsom. It was later modified by the full Board of Supervisors before being placed on the ballot.

The savings the measure could generate for The City is estimated at between $300 million and $500 million, “depending on future wage and benefit rates for employees and other factors,” according to the City Controller’s Office.

The City will pay about $300 million in retirement benefits for city employees during this fiscal year and the amount is expected to increase to about $800 million by 2014, which is more than the cost of operating San Francisco General Hospital and five times the amount of the Recreation and Park Department’s budget, supporters of the measure have said.

City officials have said the measure is part of an ongoing effort necessary to rein in the burgeoning costs of workers’ benefits and pensions.

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