If state Supreme Court rules against San Diego on pensions, it could could cost city millions
When the court rules in the next few weeks, it has a variety of options that would have very different effects on the city's finances and how the city compensates its employees moving forward.
Estimates of a potential city payout have been as high as
During oral arguments in the case on
The justices, however, made no comments about what remedy they might order if they follow through with a ruling that finds the pension cutbacks illegal.
The measure, which was approved by more than 65 percent of city voters, replaced guaranteed pensions with 401(k)-style retirement plans for all newly-hired city employees except police officers.
The justices could force the city to spend many millions retroactively creating pensions for 4,000 employees hired since 2012, or order the city and its unions to negotiate an alternative solution.
While unusual, the court could also fashion its own comprehensive solution that may impose obligations on the city that have never previously been discussed.
The uncertainty partly stems from
The ruling could have an impact across the state as other city and county governments consider pension cuts and how they can be legally enacted.
Since oral arguments, city and union officials have been tight-lipped about what solutions they prefer in an effort to avoid perceptions they are telling the justices what to do.
"Until they issue their order, that's speculation we're just not going to engage in,"
Mayor
A starting point for a solution could be the state labor board's recommendation in 2015 that
Based on the labor board proposal, the actuary for the city's pension system estimated in late 2015 that it would cost the city
But the number of employees hired without pensions has increased to more than 4,000 since then, more than doubling the city's potential cost.
In addition, new demographic studies showing the city had been underestimating life expectancies for its retirees prompted city pension officials to significantly increase the projected cost of pensions in 2016.
The labor board recommendation, however, said the city could count against its costs the many millions it has contributed to 401(k)-style retirement plans for those workers.
Because of the particularly strong performance of the stock market since 2012, those retirement plans are worth more than expected. That could make the city's costs to create retroactive pensions relatively minimal if the Supreme Court follows the labor board recommendation and allows the city to count its contributions to the 401(k)-style plans.
The mayor's spokesman,
Another option for the court might be leaving the pension cuts in place, forcing the city to pay court costs and other penalties but not creating retroactive pensions.
The reasoning would be that the court wouldn't be ruling that the pension cuts themselves are illegal, just that they were illegally placed on the ballot by Sanders without conducting labor negotiations beforehand.
The justices could decide it's not appropriate to punish the citizens for a technical misstep by their elected leaders.
Another option for the court could be ordering the city and its unions to negotiate an alternative solution that makes more sense to both sides than the state labor board ruling.
Possibilities could include the city offering hefty pay raises in exchange for the unions agreeing that new employees will continue to receive the 401(k)-style plans instead of pensions.
Instead of pay raises, the city could offer to restore retiree health care benefits that were slashed in 2010, or some combination of those two.
Some of the 4,000 employee without pensions may prefer those options to having pensions retroactively created for them, especially if they don't plan to work for the city long enough to be eligible for a pension.
Looming as a factor in all of those compromise options is the possibility, if the court rules Proposition B is illegal, that supporters of the initiative would place a similar measure on a future ballot.
While the 401(k)-style plans require roughly the same size annual contributions from the city as pensions, supporters of eliminating pensions say they are seeking to reduce the city's long-term risk.
They say pension plans put cities in financial jeopardy because employees receive a "defined benefit," leaving the city on the hook to come up with money to pay that benefit even if the stock market crashes or retirees live much longer than expected..
The 401(k)-style plans, called "defined contribution" plans, don't guarantee a particular benefit, meaning the city simply makes its contributions and faces essentially no risk.
The city, which has 11,000 employees, is facing a shortfall in its available funds to pay pension obligations of more than
The city's pension system, formally known as the
The court is required to rule within 90 days of oral arguments, which would make its deadline late August. Rulings typically come closer to 60 days, which would be the end of this month.
The court must decide whether to overturn an
[email protected] (619) 269-8906 Twitter:@UTDavidGarrick
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