Negotiations with the City Labor Unions are starting up again. We need to make sure that this year, unlike last, the outcome includes revised pension plans for new hires. There are three problems with the current pension plans: (1) They are far too generous. (2) They cost taxpayers far too much. (3) They create an unacceptable level of financial risk for the taxpayers. Let me briefly describe these problems as I see them:
(1) Too Generous: Our recently retired Fire Chief is drawing a pension equal to 90% of his final one years salary: $142,342 a year, for the remainder of his life, guaranteed by La Mesa taxpayers. He worked for 30 years, he might be as young as 50 (I don't know his age but Fire employees are allowed to retire at age 50), and he contributed nothing to his pension for most of those 30 years. We also provide a benefit for spouses, should the pensioner pass away first. Interestingly, prior to the 2001 increase in pension multipliers, his pension would have been about $95,000. Both Safety (Fire and Police) and non-Safety (other) employees receive 3% of final years salary for each year worked. Non Safety employees must "wait" until age 60 to retire, however they can draw well over 100% of salary at that time. And ... they receive Social Security in addition.
(2) Too Costly: The amount we contribute to the pension fund varies from year to year. In the 2008/9 budget year, taxpayers paid over $5 million to CalPers (the organization that manages pension money for La Mesa). That amount is projected to decrease to under $4 million for the next few years because, as of last years negotiations, employees pick up part (about 25%) of the pension payments. However, the taxpayer payment is scheduled to increase again -- to over $6 million by 2013/4. Taxpayers also make Social Security payments for Non-Safety employees.
(3) Too Risky: CalPers invests the money we contribute and expects a certain return (right now I believe 7.75%). They also make a number of difficult "actuarial" assumptions: how long people will work before they retire, what final salaries will be, how long they will live in retirement, etc. Based on all of that CalPers sets the contribution rates for each year. When CalPers assumptions are off, contribution rates are adjusted. Employees (now) contribute a fixed percentage of their salary. Taxpayers contribute the rest. Taxpayer contribution rates vary considerably. They have been quite high for the past half dozen years, are expected to be even higher - more than three times as much as employees contribute - for the next half dozen years, probably longer. If the stock market were to "tank" again, our rates would go further through the roof. The La Mesa unfunded pension liability is now about 24 million dollars (and medical is another $2.5 million). That is money that those of us who received the services of pensioners and current employees are passing on to the next generation of La Mesa residents. That is not right!
Finally, let me explain the reason it is so important to make the change to a revised pension program for new hires now. The law doesn't allow us to change anything about the pension program for any current employees -- unless, of course, it is to increase the amount (surprise!) In fact our 2001 and 2003 increase not only applied to all current workers -- it was made retroactive to boot! But we are stuck with the law as it is. The money saved by implementing a less generous pension program is at first small, but it grows over time to significant amounts. The Prop L tax increase is scheduled to run for 20 years. During that time we should be able to pay down our unfunded liability and build up our reserve. The objective being to compensate for Prop. L revenues with savings from the revised pension plan, which will be significant and still growing at the end of Prop L's lifetime. We must get started on a new fairer pension program for new hires now in order to realize those very significant gains and get our budget back in order!