The Morning Report
Get the news and information you need to take on the day.
Statement:“‘Cut the pensions.’ Well, we have. We moved from a defined benefit to a defined contribution, gotten rid of retiree healthcare,” said Todd Gloria, in December.
Here’s the full question and answer San Diego City Councilman Todd Gloria gave to San Diego Uptown News during a long interview (emphasis added):
Question: You hosted several public budget forums in District 3. How do you guide the discussion to provide practical ideas?
Councilman Todd Gloria: There are a lot of comments that maybe aren’t necessarily well informed – a gut or visceral reaction. So what we try to do is front-load the meeting with data about how we got here. What’s been surprising to me is that when people do offer suggestions, very often it’s stuff we’ve done already. “Tell the employees to take a pay cut.” Well, we did that. We asked them for a 6 percent pay cut and they did that. “Cut the pensions.” Well, we have. We moved from a defined benefit to a defined contribution, gotten rid of retiree healthcare. “Why don’t you increase fees?” Well, we did that this year. The purpose of the presentation that I make is to try to give residents the sense of the claustrophobia that we have on this issue. There isn’t a wide array of options; there’s very, very few. There’s significant cuts, very large layoffs or new revenue. And frankly, the answer is probably a combination of them.
Analysis: Councilman Gloria’s contention that the city has moved from a defined benefit pension plan for employees to a defined contribution plan is false. As is his claim that they have gotten rid of retiree health care.
First of all, a defined benefit is a guaranteed pension. In other words, no matter how well the pension fund investments perform, the benefit the retiree receives is something they can plan on — it’s defined. But when a worker has a defined contribution pension, they only know what they and their employer will invest for the pension. But what’s left when they actually retire is uncertain. It depends on the market and their investing ability.
Some libertarian activists might have read the interview and been thrilled to learn that their long-time goal of switching city employees away from a guaranteed pension to something like what private-sector workers get with a 401k plan had happened. But it didn’t.
And while city retirees might be a little freaked out to learn that health care for retirees had been gotten rid of, that has not happened either.
Gloria’s office said he was talking about new employees (those hired after July 2009). And yes, for them there is a new deal. But while their guaranteed — or defined benefit — pension was lowered, it was not replaced entirely.
The new employees who are part of the city’s largest labor union, the San Diego Municipal Employees’ Association, for instance, got a much lower formula for calculating their pension than their colleagues (you can see it here, Page 39). If you were hired before July 2009, you will get 2.5 percent of your salary for every year you worked at the city if you retire at age 55. For an employee hired after July 2009, he or she only gets 1 percent of their salary times the number of years they worked.
So it was a significant decrease, but not elimination, of the defined benefit.
Furthermore, the new system also does not apply to police officers and firefighters.
The new plan does offer new employees an increased 401k style pension contribution from the city to make up for part of what they lost (though, I guess, if they’re new, they didn’t “lose” anything). But it was hardly a complete switch to a new system.
And as far as health care is concerned, the thousands of city employees and retirees currently either enjoying the benefit or looking forward to enjoying it can rest easy. Little has changed for them. For new employees, talks will begin soon to set up a type of trust that both the city and the employees will contribute to to help them pay for health care — but not guarantee them a certain level of coverage.
To be clear, current employees are not out of the woods. Gloria’s office emphasized that city negotiators will be working to move current employees to a similar type of investment trust for health care. In other words, rather than guarantee a level of health care for employees when they retire, Gloria and his colleagues will be asking them to just help them form a fund — a pot of money that will be invested — and however much is in there is what will be available to help retired city workers with their health care costs.
In response to our query for this Fact Check Gloria’s deputy chief of staff, Katie Keach wrote this:
Last year’s negotiations resulted in the City suspending the benefits escalator on retiree health. While under the freeze, the City and labor unions are undergoing a study to transition to a defined contribution plan for existing employees, which was imposed on two labor unions. According to staff, this results in a savings of approximately $350 million. In the addition to the freeze, the City has doubled its vesting period.
Additionally in terms of Retiree Health, the City moved from a defined benefit to a defined contribution plan for new hires (for non-public safety members hired after July 1, 2009). This reform nearly eliminates the City’s liability. New hires are now required to contribute a portion (equivalent to .25%) of their pay.
This reform would not “eliminate” the city’s liability. It eliminates it for new employees only — who are a fraction of the total population of workers. The massive health care liability has not gone anywhere.
— SCOTT LEWIS