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Fiscal Fiona wrote

Erik, Why have you abandoned the free market, finance professionals and taxpayers? San Diego’s retirement system has beaten the market and 94% of its peers since 1996, the year politicians raided the pension system and stuck it to taxpayers. I have more faith in investment pros than 401ks where the average savings is less than $50K. ANNUALIZE THIS and you get $3,000/year instead of a modest pension keeping retirees off of government assistance. Now taxpayers don’t pay social security for workers. That will change with your 401k plan.

 Fiscal Fiona misses the big point. It is NOT that the San Diego City Employees’ Retirement System is poorly managed. I think they do a decent job.

It is that, for the reasons I wrote in my first post, this city is INCAPABLE of managing it. She correctly notes the sins of the politicians. But so we understand that there is blame to go all around, the workers and their bargaining units (again, I am NOT casting blame but rather showing symptoms of the structural problems that make the city of San Diego a poor candidate to steward of financially solid plan) have also succumbed to skewed incentives.

One of the biggest was when, leading up to Manager’s Proposal I and II, the bargaining units asked for RETROACTIVE benefit enhancements. In other words, employee benefits would be calculated as if, in years prior, a higher rate had been in place. The problem is that we had already collected (I know, I am assuming away the “pick-up” but bear with me) from employees the “Normal Cost” calculated as a function of the “old” rate. Look how god-awful confusing explaining that policy issue is. But it has ENORMOUS financial implications for taxpayers. Everyone’s incentives are to agree to that deal — except those of taxpayers.  (A similar moral hazard is when the unions did not oppose the litigants in the Gleason case — which also had the effect of retroactively enhancing benefits and leaving the taxpayers as the partly solely responsible for these new liabilities)

 Second, Fiona either has bought or is repeating the big lie: Taxpayers do pay the equivalent of Social Security. Under the city’s SPSP plan, employees have a mandatory amount of 3 percent taken out. They can voluntarily take out another 4.5 percent. The city matches the amount of SPSP 100 percent! So rather than 6.2 percent Social Security Tax, the city can be on the hook for as much as 7.5 percent! Even worse (I know, it gets sad after a while), since Social Security taxes cease after $97,500 in 2007 and the city’s SPSP does not, the effective rate could be a bit higher. Having our employees not in Social Security is NOT a slam dunk deal for taxpayers.

ERIK BRUVOLD

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