People’s Reporter: The Pension Problem

In my 18 months covering San Diego politics, people can’t stop talking to me about two dates: 1996 and 2002. Those were the years the city gave massive retroactive pension benefit increases, known as MP-1 and MP-2, while at the same time underfunding the pension system. The fallout of those decisions led to national scorn and financial ruin. We’re still saddled with their legacies today.

To wit: Out of Mayor Jerry Sanders’ proposed $1.1 billion day-to-day operating budget, 16 percent or $177.8 million will go toward the annual pension payment next year.

Naturally, when I solicited questions about the city budget someone was going to ask about the pension. The issue: What would the city’s pension payment today be if those two decisions didn’t happen?

That question is beyond the scope of what I’m able to research today, but I can answer a different one: How much less would the city have to pay if past pension benefit increases weren’t retroactive?

The retroactive pension hikes faced significant criticism because they gave employees extra benefits for years they had already worked.

That’s a problem because the retirement system did not receive retroactive contributions from the city and the workers that would have been required had the higher benefits been in place all along. As a result, the city had to pick up the entire tab for those benefit increases. (The California Supreme Court recently declined to hear an Orange County lawsuit that tried to nullify a retroactive pension hike.)

Last June, the retirement system’s actuary determined that had those benefit increases applied only to city workers’ future service, the city would have saved nearly $300 million off its total liability, or $26.5 million this year.

Those numbers have a few caveats. It also includes retroactive benefit increases granted through a lawsuit settlement. It does not include employees who retired between 2002 and 2009 who also received the retroactive benefits. And it doesn’t include the cost of giving increased pension benefits to city workers going forward or if the benefit increases had been effective prospectively only.

“You could look at those numbers and say that MP-1 and MP-2 weren’t that expensive,” said Mark Hovey, CEO of the city’s retirement system. “That would be the wrong conclusion.”

Please tell Liam Dillon what to do directly at liam.dillon@voiceofsandiego.org or 619.550.5663. You can also tell him what to do on Twitter: twitter.com/dillonliam