Along with almost every other city and county in the nation, San Francisco is struggling to meet our City’s increasing costs of pension and health care obligations. Losses in investment funds have driven the cost of providing these benefits to unsustainable levels. At the same time, health care costs of active and retired employees continue to increase at a rapid rate.

Reforming our pension system is important in ensuring that the City continues to be a safe city, a solvent city and a successful City, which I believe are three important principals for our City’s economic recovery and continued financial stability.

San Francisco’s total employer contributions to retirement and health care are set to increase by more than $125 million in FY11-12. In each of the succeeding three fiscal years, additional increases are expected in excess of $100 million. We have an obligation to address our $4.4 billion unfunded liability for retiree health care coverage, and we hope to address this with a combination of increased employee contributions and structural reforms to reduce costs.  The rapid growth in our employee costs will soon restrict our ability to make the investments our City needs for the future. Over the next five years, citywide pension costs will approach $800 million. This growth in costs means less funding is available for seismic safety improvements and upgrades to infrastructure needed to keep our economy competitive.

The City cannot sustain its current workforce and benefit structure in light of exponentially increasing benefit costs.  We need to reform our benefit structure to provide pensions and health care for employees and retirees that allow our workers to work and retire in dignity, without unduly compromising important services we must provide to the public.  We are seeking both long-term reform in the form of new, lower benefits for those whom we have yet to hire and immediate relief in the form of cost-sharing by current City employees for the existing level of benefits we provide.

Our Progress

On May 24, 2011, I along with Supervisor Sean Elsbernd introduced a proposed Charter amendment for pension and health benefits reform for the November 2011 ballot. After months of working with labor leaders, business leaders, community-based organizations and the City family, the consensus reform measure would restructure San Francisco’s pension and health benefits. The proposed Charter amendment is co-sponsored by Board of Supervisors President David Chiu and Supervisors Carmen Chu, Malia Cohen, Mark Farrell and Scott Wiener.

Our consensus pension reform measure is comprehensive, balanced, and responsible. It will realize the savings we need so that we can protect vital City services now and in the future. It is an important part of our overall strategy to bring structural reforms to San Francisco’s long term financial planning and budgeting and ensures that we have a system that San Francisco can afford, while providing pension and health care to its employees. Our proposals reflect a belief that all must share in the solution-employees, retirees, and the City on a fair, equitable and legally-supportable basis.

The comprehensive measure would:

• Prevent pension spiking
• Cap pension benefits
• Raise retirement ages
• Require greater cost sharing by employees
• Use a sliding scale to protect lower wage employees
• Require greater employee contributions to the retiree health trust fund

The proposed Charter Amendment takes a comprehensive approach to these challenges by creating new, less expensive pension tiers for all new hires; implementing a system of cost sharing, in which employee pension contributions rise and fall with the City’s costs; providing for employee funding of a portion of the City’s costs for retiree health care; and making structural and governance changes to the City’s health care system to improve efficiency and reduce costs.

What this proposed Charter Amendment will do:

1. Create additional cost-sharing of up to six percent for future and current City employees based on increases to the City’s required retirement contributions. Employees earning less than $50,000 per year are exempted.

2. Cap Pensionable Salary for new employees at 75% (safety) to 85% (miscellaneous) of IRS rate.

3. Create new retirement tiers for new employees that increase the minimum and maximum ages under the City’s retirement formulas: 
a. Miscellaneous: 2.3% at age 65 (down from 2.3% at age 62)
b. Safety:  3% at age 58 (down from 3% at age 55)

4. Pension to be based on a final compensation period over three years for new employees instead of the final one or two for current employees.

5. Eliminate “vesting retirement” annuity for new miscellaneous employees who do not qualify for a service retirement, and replace it with deferred service retirement.

6. Mandate that Supplemental COLAs are only to be paid when the Retirement Plan is fully funded.

7. Require that all elected officials participate in cost-sharing and pay their own retirement contributions.

8. Include Deputy Sheriffs and “miscellaneous safety” employees in cost-sharing obligation even though their retirements are currently provided via contract with CalPERS.

9. Amend the composition of the Health Services Board to ensure balanced decision-making.

10. Require existing employees to begin contributing to the Retiree Health Care Trust fund starting in 2016-17.

11. Restrict certain retiree health benefits for employees who left City employment, but who have not yet retired to those benefits that were in effect as of the date of their employment. 

The Charter amendment must next be discussed at a hearing of the Board of Supervisors Rules Committee before it is considered by the full Board for the November 2011 ballot.

To view a PDF copy of the charter amendment, please click here. 

Visit the following links for more information: 

Department of Human Resources
Board of Supervisor - Introduction of Pension Reform Legislation