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Employee pensions are known as deferred compensation.
I like that term because it communicates a lot. Compensation is what people get for working. It’s a payment to someone for what their time and effort was worth. As an employer, you decide what the person’s time is worth based mostly on the concern that if you don’t get it right, they might prefer to spend their time working for someone else.
Deferred compensation is basically an agreement between you and the employee that they earned a certain amount of money, but you are going to pay it out years from now. That helps you, the employer, because the employee may plan a long-term career with you and feel comfortable and secure that their future is being planned.
That’s deferred compensation.
Now meet deferred austerity.
Deferred austerity is the definition of Mayor Jerry Sanders’ heavily hyped plan to eliminate guaranteed pensions for new employees. The key word there is “new” — it affects nobody who currently exists right now.
Instead of deferring these future employees’ compensation, Sanders wants to give it to them in an account similar to the 401(k)s to which private-sector employees have grown accustomed. When they retire, they’ll have available whatever’s in the account. City Councilman Kevin Faulconer also touted the idea.
Sanders announced it in the opening lines of a press release meant to lay out several things he might do to abolish the city’s budget deficit this year. His office insists he wasn’t implying that putting new employees on the 401(k) plan was part of that.
Sanders, his aides say, knows quite well that the idea to abolish future employees’ pensions would have little effect on the city’s current problems. The Union-Tribune’s editorial page though, and others, can be forgiven for lumping it all together. It was clearly intended to be lumped together.
Switching to a 401(k)-style plan for new employees may be something the city needs to do for the long term (though it doesn’t come without potential costs as well).
But right now the city is deteriorating at an alarming pace. And this move does absolutely nothing to change this dynamic. Nothing.
This city is in a severe crisis and it’s trying to recover. The mayor himself campaigned recently for a tax increase because what we’re about to face, he said, were some of the most severe if not harmful cuts to city services we’ve ever imagined.
Yet now the mayor is planning on mounting a campaign, rallying his base of support and pushing for voters to approve of this “radical” switch he’s proposing.
What’s wrong with that, you say? Forbes magazine, after all, said this about the idea: “instituting a defined contribution plan could save San Diego from creating a future fiscal nightmare.”
The problem is, we’ve already saved San Diego from creating a future fiscal nightmare. New employees do not enjoy anything close to the size of pensions their predecessors do.
It was the 2008 version of Mayor Jerry Sanders who stood outside of City Hall on a sunny July day and proudly proclaimed that a major compromise had been reached with employees that forced new employees — again excluding police and fire — onto a much smaller pension plan.
Earlier reform efforts ensured that a vote of city residents would have to occur before politicians can ever enhance employee pension benefits again.
Picture the mayor in a boxing match. He already knocked out the new employees. Now he’s grabbing them by the hair for another kick in the teeth. Good thing those people don’t exist yet.
But that’s the point. It’s easy to hammer future employees. They don’t have feelings. They haven’t made any plans.
Meanwhile the burden that is suffocating this city has to do with the benefits promised to current employees.
Councilman Carl DeMaio also supports moving new employees to a 401(k) style plan but he decided to also propose an attractive fix to what ails us now.
Pensions are calculated by a formula applied to an employee’s salary. Until now, most city leaders wanting to lower the pension burden have focused on changing the formula for how the pension is determined. They’ve run head first into judges who say state law simply won’t let them touch it.
DeMaio recognized, though, that there was one thing that the city could change: the employees’ salaries. His plan is to freeze or cut salaries and find other things that can be taken out of the pension equation. For instance, if someone is paid extra for a certain qualification or for, say, being bilingual, pay them that, but don’t factor it into their pension benefit.
It’s so simple it should be the center of the current discussion. Whether it should be implemented is up to city leaders and, maybe, voters. Agree with it or not, though, it’s a direct stab at the current city imbalance — the one that’s going to cause so many services to be cut supposedly.
It deals with the burdens at hand.
The mayor should be commended for trying to do that with Proposition D. Whether you agreed with him or not, he invested many years’ worth of political capital into a plan that would have raised the city’s sales tax but also enacted some reforms. It too would have been a direct stab at the burdens at hand.
Even though it failed, it prepped the populace for a debate where solving the structural deficit is the universally accepted end goal.
And that’s why it’s so frustrating to see him hype what is really a distraction from that discussion. Future employees have already been given the tough medicine.
It’s time for someone to take the medicine now.