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I received a lot of response to this post about the mayor’s plan to switch future city employees to a 401(k)-style pension and eliminate the city’s defined benefit pension plans.
Most focused on the comparison I made between the mayor’s idea and Councilman Carl DeMaio’s “Roadmap to Recovery.” That roadmap is a long one, but its most interesting turn is a plan to lower the city’s pension liability by controlling the one thing the city can control in the pension equation: the salaries workers earn.
You see, their salaries are applied to a formula that then spits out a person’s guaranteed pension.
In 1996 and 2002, the city made the formula more lucrative for city employees. And efforts to dial it back for those same current city employees have mostly failed. At the same time, salaries have also gone up. The pension system plans for salaries to rise and its assumptions about their growth form a large part of the mega shortfall the city is staring at.
Here’s what I said in the column, which sparked the response from many readers and insiders:
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.
While everyone agrees the city can cut salaries all it wants, it was the second part of the idea — that it remove from the pension formula extra pay that some workers get — that provoked the backlash.
“That would be illegal and it is settled law” was the brunt of many notes to me, including one from Erik Bruvold, the CEO at the National University System Institute for Policy Research, who pointed to this California Supreme Court decision.
To be clear, DeMaio is arguing that this be done from now going forward; it wouldn’t apply retroactively. He says the city can submit to the retirement system what pay should be considered “pensionable.”
Today, the San Diego County Taxpayers Association endorsed the idea in a list of pension reform principles its board endorsed and passed along in a letter to the mayor: “Pensions shall be calculated based upon base pay only (no add-ons) for existing employees and new hires,” the association wrote.
I asked DeMaio for a response to Bruvold’s claim this would be illegal.
“Absurd,” he wrote on Twitter, pointing me to a 2010 legal opinion from City Attorney Jan Goldsmith. He added this: “We also have written legal opinion from Mayor’s own labor counsel Tim Davis confirming this.”
DeMaio’s office, though, refused to give me a copy of that legal opinion. A representative apologized but said they wouldn’t be allowed to give it out because it had been marked as attorney-client privilege.
So you can use the substance of a legal opinion to make your point publicly, but you can’t actually let us review the opinion? That’s convenient.
In an earlier interview, DeMaio had also cited Davis.
“We went to Tim Davis and said … ‘Can we negotiate the pensionable status of specialty pays?’ And he said: yes. ” DeMaio said. “EMTs you’re still going to get your EMT bonus but you’re not going to get it from a pensionable standpoint. When you start freezing that pay that is pensionable, then you literally see those bar graphs that go all the way up, they go down to sustainable levels. “
That’s why the idea has legs. Nobody disagrees that the City Council can lower the employees’ salaries. The question was whether the city can calculate their pensions based on a core salary and offer incentive pay separately. If it can, then you could presumably cut millions from the pension burden without significantly altering workers’ take home pay.
If it’s legal, then it does seem like something that should continue to be discussed as part of a larger recovery package. If it’s an unproven legal theory, though, well, we’ve been down that road before.
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