Pass: 154,216 / 65.8% Yes votes ...... 80,126 / 34.2% No votes

See Also: Index of all Propositions

Summary:

This measure would amend the San Diego City Charter to make changes to retirement benefits. The measure would:

• From its effective date until June 30, 2018:

  1. Limit a City worker's base compensation used to calculate the employee's pension benefits to Fiscal Year 2011 levels.

  2. Require that any new job classification be created only after specific findings are made that the new classification "is necessary to achieve efficiencies and/or salary savings" by consolidating job duties or creating a more efficient service delivery method.

  3. Define the terms the City must use when it begins negotiations with the City's labor unions for their contracts, unless the City Council overrides those terms with a two-thirds vote.

• Provide all new hires at the City, except for sworn police officers, with a defined contribution plan modeled after a 401(k) plan in place of a defined benefit pension plan.

• Provide contributions for employees participating in the new defined contribution plan, in order to compensate for the lack of Social Security provided to City workers. The City's maximum contribution for general City employees would be 9.2 percent of an employee's salary; the maximum contribution for uniformed public safety officers would be 11 percent of their salaries.

• Authorize the City Council to enroll police officers in either the defined benefit or the defined contribution plan. The maximum payment to a sworn police officer hired after the measure goes into effect, under the defined benefit pension plan, would be based on the officer's highest three years of pay, and capped at 80 percent of the average of those years.

• Eliminate the defined benefit pension plan prospectively for elected officials (Mayor, City Attorney and City Councilmembers).

• Eliminate, to the extent allowed by law, pension benefits for City officers or employees convicted of a felony related to their employment, duties or obligations as a City officer or employee. This may be reversed if the conviction is overturned.

• Eliminate, unless otherwise allowed by law or agreement, the requirement of a majority vote by employees or retirees in the retirement system for changes that affect their benefits.

• Require the City to contribute annually to the defined benefit pension plan an amount substantially equal to that required of the employee for a normal retirement allowance, but not contribute in excess of that amount.

• Provide disability benefits for defined contribution plan participants who have a work-related disability.

• Require the Retirement System to submit an actuarial study to the Mayor and Council regarding the impact on the pension plan "of any increases in proposed compensation or benefits" in an initial Council proposal.

• Require the City to annually publish the amounts paid to City retirees, but redact their names.

Fiscal Impact:

There are two major fiscal analysis components for this ballot measure: potential salary freeze savings and pension benefit changes.

Potential Salary Freeze Savings
Potential savings from freezing salaries for six years (July 1, 2012 through June 20, 2018) are projected to be $963 million over 30 years, or $581 million when adjusted for inflation. However, the ballot measure does allow the City to negotiate salary increases with employees, in lieu of freezing employees' salaries, with a 2/3 vote of the City Council. If this occurs, the projected savings of $963 million would be reduced or not achieved.

Pension Benefit Changes
Pension benefit changes are projected to cost a net $13 million over 30 years $56 million when adjusted for inflation). These changes are outlined in the bullets and table below.

• $1.324 billion in savings to Defined Benefit (DB) plan Annual Required Contribution (ARC) amounts, due to future employees not being eligible for the DB plan.

• $1.384 billion in contribution costs to a new Defined Contribution (DC) plan, assuming the maximum employer contribution rates allowed under the ballot measure (9.2% for General employees and 11% for Safety employees) are made. This also assumes the same base compensation as the current DB plan (no overtime included). The actual DC plan structure must be negotiated with labor unions.

• $215 million in net savings resulting from changing the DB plan's payment schedule for the Unfunded Actuarial Liability (UAL), due to closure of the DB plan to all future employees except police officers.

• $217 million in costs for a new death/disability program for future employees - assumes death/disability benefits for future City employees will be comparable to benefits for current employees. Program design must be negotiated with labor unions.

Pension Change	Projected Savings/(Costs) Over 30 Years (in millions)	Inflation-Adjusted Savings/(Costs) Over 30 Years (in millions)
DB Plan Savings	$1,324	$657
New DC Plan Costs	($1,384)	($688)
UAL Payment Schedule Savings	$215	$58
New Death/Disability Costs	($217)	($107)
Police Plan Savings	$49	$24
Net Pension Costs	($13)	($56)

Other Issues
Future employees' participation in a new DC plan, as opposed to the current DB plan, would transfer certain risks, most notably investment and longevity risks, from the City to future City employees. While the DB plan's current assumed rate of return is 7.5%, its investment results for the past 20, 10 and 5 years have been 8.5%, 6.4% and 4.4%, respectively.

Additional ballot measure costs include: administrative and set-up costs for the new DC plan and new disability program and actuarial analyses, if required.

Note that the ballot measure is estimated to result in increased costs to the City of $54.1 million for fiscal years 2014 through 2016, largely due to the change in the UAL payment schedule. These costs will be greater and could continue over a longer period of time if salary freezes are not implemented.

Impartial Analysis from City Attorney

This proposition would amend the San Diego Charter regarding retirement benefits for City employees and officials.

The City's existing defined benefit pension plan is a retirement plan that the City and City employees contribute to throughout an employee's career. Upon retirement, an employee receives specified pension payments. The employee's annual pension benefit is presently calculated by a formula that includes the employee's highest one-year salary (or three-year average salary for general and safety employees hired in certain recent years). The proposition refers to "base compensation" as the salary used to calculate pension benefits.

From its effective date until June 30, 2018, this proposition requires the City's initial bargaining position in negotiations with labor organizations to include terms consistent with: limiting employees' base compensation used to calculate pension benefits to no more than Fiscal Year 2011 levels, and other terms as described in the proposition. These proposed terms can be overridden by a vote of six City Councilmembers.

The proposition prohibits most new employees hired on or after the effective date of the proposition from participating in the existing defined benefit pension plan. Instead, new employees, except new sworn police officers, would be offered a defined contribution plan modeled after a 401(k).

The proposition authorizes the City Council to enroll new sworn police officers in either the defined benefit pension plan or defined contribution plan. For new police officers enrolled in the defined benefit pension plan, the maximum pension payment would be capped at 80 percent at age 55 of the average of the officer's highest consecutive three years of base compensation. Pension payments would be decreased if an officer retires before age 55.

The proposition authorizes the City to make contributions for employees participating in the defined contribution plan. The City's maximum contribution for general City employees would be 9.2 percent of an employee's compensation; the maximum contribution for uniformed public safety officers would be 11 percent of their compensation.

Unless required by law or agreement, the proposition eliminates existing requirements to obtain a majority vote of employees or retirees in the retirement system for changes affecting their benefits.

The proposition eliminates the defined benefit pension plan for elected officials (Mayor, City Attorney and Councilmembers) assuming office on or after the effective date. The proposition eliminates, if allowed by law, pension benefits for City officers or employees convicted of a felony related to their employment, duties or obligations as a City officer or employee. This may be reversed if the conviction is overturned.

For those remaining in the defined benefit pension plan, the proposition would require substantially equal pension contributions by the City and employees for a normal retirement allowance, except in certain circumstances. Charter amendments are not effective until chaptered by the California Secretary of State. If approved, the City will enter "meet and confer" negotiations with labor organizations regarding this proposition's implementation. A defined contribution plan would need to be created.

UT San Diego

• PENSION MEASURE'S SAVINGS DEPEND ON FREEZE - 5/26/12
• Does pension initiative provide a safety net? - 5/19/12

• Ensuring The Security Of Future San Diego Workers - 5/28/12
• Does Prop B's Pension Reform Save San Diego Money? - 05/08/12

• LABOR COUNCIL SAYS NO ON "A" "B" AND "D" - 05/04/12