San Jose Mercury News: SJ City Councilmembers call to cut their pension

San Jose City Council members issue a call to cut their own pensions

By John Woolfolk
San Jose Mercury News

Posted: 01/04/2012 04:09:06 PM PST

 

As San Jose's elected leaders try to trim city workers' pensions whose rising costs are gobbling up funds for services, their own guaranteed retirement plan has drawn little scrutiny.

But amid growing employee outrage over proposed pension cuts -- which Mayor Chuck Reed wants to take to voters in June -- he and some other council members now say it's unseemly for them to keep their own pensions, whose costs also are climbing.

"With the council pursuing pension reform, the mayor and council members should personally lead by example by eliminating defined benefit pensions for City Council members," Councilman Pete Constant said.
On Wednesday, a committee headed by Reed unanimously approved Constant's proposal that the council on Jan. 24 consider steps aimed at terminating the mayor and council's pension plan.

California voters two decades ago eliminated pensions for state legislators at the same time that they imposed strict term limits. But most full-time elected officials in county government and the three major Bay Area cities are covered by a pension plan -- in many cases more generous than San Jose's.

Pensions have been a white-hot issue at San Jose City Hall, where an 11th straight budget shortfall looms as employee pay and benefits continue to outpace revenues. The city's employee pension bill has ballooned from $73 million to $245 million in a decade. And despite revised estimates that shrank the tab for next year,

the pension costs are expected to keep climbing. The city has cut staff -- and last year even laid off 66 police officers -- in large part to cover pension costs.


Reed and council allies like Constant have called for a June ballot measure that would shrink retirement benefits for new hires and require current employees to pay more toward their pensions if they don't switch to a cheaper plan.

San Jose's mayor and council aren't covered by the municipal pension plan for employees, but by a separate plan administered by the California Public Employees' Retirement System, or CalPERS. That plan's costs have climbed from $130,727 in the last fiscal year to $159,827 this year, and Constant says it's underfunded by about half a million dollars -- a tab that would have to be picked up by taxpayers.

CalPERS records show the plan covers 10 retired elected officials and nine current ones. Ten former elected officials also earned benefits in the system.

Unlike the 401(k)-type plans offered most private-sector workers, pensions guarantee a lifetime retirement benefit, typically a percentage of salary multiplied by the number of years worked.

The plan for San Jose elected leaders allows full retirement at age 55 and pays 2 percent of salary for every year worked, with 2 percent cost-of-living raises each year.

The plan for council members at current pay rates would provide a $13,000 annual benefit to an elected official retiring at age 55 after serving the limit of two four-year terms. But the benefit allows reduced retirement as early as age 50 that would pay a two-term council member more than $9,200 a year for life.

It also allows increased payouts for delayed retirement. A two-term mayor who served two full terms on the council could retire at 63 with more than $44,000 a year.

Under San Jose's charter, a council-appointed citizens commission convened every odd-numbered year recommends pay and benefits for the mayor and council members. The council must then either adopt that recommendation or something less.

That commission in 1995 had recommended pensions for the mayor and council, which approved the new benefit in 1998. At the time, the mayor was paid $90,180 a year and council members $60,570.

Last year, the commission formalized the 10-percent pay cuts that council members had taken voluntarily as they imposed similar cuts on the city workforce. That shrunk salaries to $81,000 for the council and $114,000 for the mayor. But Reed has capped his salary at $105,000 a year, the same amount he was paid when he took office in 2007.

The commission last year also recommended that the council look into dropping the pension plan for future mayors and council members. A commission survey of some 800 residents found a majority felt that the city's elected leaders were overpaid, and almost a third of those surveyed favored eliminating city retirement benefits for council members.

Constant and Reed want the city's elected leaders off the pension plan as soon as possible -- which would leave them with only a 401(k)-type defined-contribution plan. All the city's current elected leaders are covered by the pension except Vice Mayor Madison Nguyen and Councilwoman Rose Herrera.

Councilman Don Rocha and Pierluigi Oliverio said they have no objection if the city drops their pension benefit. But Councilman Kansen Chu was concerned that upfront costs for ending the council pension will make a gesture he considers mostly symbolic not worthwhile.

"I want to see the numbers," Chu said.

According to a memorandum by the city attorney, once council members start coverage the CalPERS plan they cannot switch later to the 401(k)-type plan, even when they're re-elected, and the council cannot reduce the benefit formula to lower costs. The city can terminate the plan with a two-thirds vote of the council, but "will immediately become liable to CalPERS for any deficit in funding for earned benefits, among other charges," the memo said.

But Constant and Reed said that while the upfront cost for dropping the council pension plan may be steep, it's something the city should do. Constant said pensions are supposed to attract and retain career employees, not reward council members who in San Jose are limited to eight years in office.

"This is a short-term job," said Constant, who already receives a pension after retiring from the police force on disability. "They're not made for that."

PENSIONS FOR POLITICIANS

San Jose offers the mayor and 10 City Council members a pension with the California Public Employees' Retirement System. The plan is a 2%@55 formula, meaning that officials are eligible for full benefits at age 55, and they get 2 percent of their salaries for each year of service. Some council members are now calling for eliminating the benefit. But other full-time elected officials around the Bay Area continue to receive pensions -- which in many cases are more generous than San Jose's plan.

San FranciscoThe mayor and Board of Supervisors are covered by the city's 2.3%@55 plan.

OaklandThe mayor and City Council are covered by the city's 2.7%@55 CalPERS plan.

Santa Clara CountyThe elected Board of Supervisors is covered by the county's 2.5%@55 CalPERS plan.

Alameda CountyThe elected Board of Supervisors is covered by the county's 2.43%@62 plan.

San Mateo CountyThe elected Board of Supervisors is covered by the county's 2%@55.5 plan.

Santa Cruz CountyThe elected Board of Supervisors is covered by the county's 2%@55 plan with CalPERS.

Contra Costa CountyThe elected Board of Supervisors is covered by the county's 2%@55 plan.