By practicing fiscal responsibility, Mayor Reed has worked to preserve core city services when faced with chronic budget deficits.
Retirement Reform
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Mayor Reed has made retirement reform a top priority in his efforts to close the city's enduring budget deficits and restore services to the community. The City of San José currently pays $245 million per year for employee retirement benefits (up from $73 million ten years ago). More than 20% of the General Fund is dedicated to retirement costs and the City's two retirement funds have billions of dollars in unfunded liabilities. Without reform, these unsustainable costs will destroy the City's ability to deliver basic services to its citizens. Learn more about the city's pension problems.
Under Mayor Reed's leadership, the City Council has been pursuing a set of reforms to bring the City's unsustainable retirement costs under control. Learn more about current efforts to reform the City of San José's retirement benefits:
In May 2011, Mayor Reed, Vice Mayor Nguyen, Councilmember Herrera and Councilmember Liccardo released an initial proposal to reform retirement benefits for new employees, current employees and retirees. Since then, the City has spent the past eight months engaged in negotiations with the city's employee unions, and the proposed reforms have undergone significant changes as a result of those negotiations.
Because many of these reforms would require changing the City Charter, the City Council has approved placing a retirement reform ballot measure before San Jose voters during the June 2012 presidential primary election. On March 6, the Council will consider a recommendation from the City Manager to make a number of final modifications to the ballot measure language which address some of the concerns raised by the City's employee unions during the extended mediation process that took place in early 2012.
Below are the key elements of the retirement reform ballot measure (including the latest modifications recommended by the City Manager):
New Employees would be placed in a new, lower-cost retirement plan (view details)
The ballot measure sets parameters and maximum limits on retirement benefits for future employees (the specific design of the plan will be the subject of negotiations with the City's employee unions):
New employees would contribute 50% of the total cost of the new plan.
The hybrid plan could consist of: 1) Social Security, 2) a defined benefit component, and/or 3) a defined contribution component.
Any defined benefit component would have to meet the following requirements:
Retirement Age: 60 for public safety employees and 65 for all others; employees would have the option to retire earlier with reduced benefits.
Accrual Rate: could not exceed 2.0% (of salary) per year of service, with a 65% maximum benefit
Benefit would be based on the highest average salary over a 3-year period.
Cost-of-Living-Adjustments: based on CPI, capped at 1.5% per year.
The City could also contribute to a defined contribution plan as long as the City's total cost for the retirement benefits does not exceed 9% of an employee's base salary.
Current employees would be given the option to either: a) pay more to keep their current retirement plan or b) opt-in to a new, lower-cost retirement plan (view details)
Option 1: Employees would contribute an additional 4% of salary (starting in June 2013) to help pay off the pension plan’s unfunded liabilities. These extra contributions could increase by an additional 4% per year until they cover 1/2 of the cost of paying off the unfunded liability or reach a cap of 16%.
Option 2: Employees would keep benefits earned to date under the current plan - but going forward, benefits would accrue at a lower rate and the retirement age would increase:
Retirement Age: 57 for public safety employees and 62 for all others (increase would be phased in over 14 years); employees would have the option to retire earlier with reduced benefits.
Accrual Rate: 2.0% (of salary) per year, for future years of service.
Benefit would be based on the highest average salary over a 3-year period.
Cost-of-Living-Adjustments: based on CPI, capped at 1.5% per year.
The City Council would have the ability to temporarily suspend retirees' Cost of Living Adjustments (COLAs) during a fiscal and service level emergency (view details)
In the event that the City Council declares a fiscal and service level emergency, the Council would have the ability to suspend retirees' guaranteed 3% COLA for up to 5 years. (Retirees would not see their pension payments reduced)
Disability retirement rules would be reformed to prevent abuses (view details)
Determinations of disability would be made by an independent panel of medical experts.
The City may provide matching funds for disability insurance for employees who do not qualify for disability retirement but incur lost wages.
"Bonus" Pension Checks from the Supplement Retiree Benefit Reserve (SRBR) would be discontinued
Voter approval would be required to enhance retirement benefits in the future
(other cities, like San Francisco, already require this)
View a chart detailing how the retirement reform ballot measure (inclusive of final changes recommended by the City Manager) would modify San Jose’s employee retirement benefits.
The City Council is also pursuing a number of other retirement reforms that were approved as part of the City's Fiscal Reform Plan. These other proposed reforms include:
Eliminating "bonus" pension checks paid out to retirees from the Supplemental Retirement Benefit Reserve (SRBR). See page 38 of the Fiscal Reform Plan.
Reducing retiree healthcare costs by 25%. Potential options have included introducing a lower-cost healthcare plan, requiring retirees to enroll in Medicare and/or offering new employees a fixed dollar amount for healthcare when they retire. See page 40 of the Fiscal Reform Plan.
The City is currently in negotiations with its 11 employee unions on these additional reforms (Visit the Office of Employee Relations website to view related proposals, correspondence and updates).
Editorials & Opinion Pieces on San José Retirement
Reforms
Listed here are a number of editorials, columns and opinion pieces commenting on the retirement reforms proposed by Mayor Reed, Vice Mayor Nguyen, Councilmember Herrera and Councilmember Liccardo.
Listed here are a number of additional articles and resources which highlight the need for addressing public sector retirement benefits and other significant reform efforts taking place across California and the rest of the country.
Pension changes can't wait by Daniel Hancock, Chair of the independent, bipartisan Little Hoover Commission, Op-Ed appearing in the Sacramento Bee, August 28, 2011
California Public Sector Retirement Programs and Compensation (a financial analysis of current state/local retirement benefits and two reform proposals), prepared by Capitol Matrix Consulting on behalf of The California Foundation for Fiscal Responsibility, July 2011
Office of Mayor Chuck Reed
200 East Santa Clara Street San José, CA 95113
tel. (408) 535-4800 fax (408) 292-6422 mayoremail@sanjoseca.gov
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which address some of the concerns raised by the City's employee unions during the extended mediation process that took place in early 2012. 