What $94 Million Would Do in San Diego Instead of Paying for a 401k Program

by on February 8, 2012 · 3 comments

in Economy, Labor, San Diego

by Jared Quient / Two Cathedrals / February 8, 2012

I am all for pension reform. Clearly our city’s budget needs work and we need to do something. But just because I believe the system is broken and it needs fixing doesn’t mean I support the Comprehensive Pension Reform (CPR) ballot measure that Carl DeMaio and his allies has been trying to sell me for the past year. Because once you look closer at CPR, it reveals itself to be a wolf in sheep’s clothing.

CPR is being sold to San Diego voters as the answer to our city’s fiscal problems, and the centerpiece of CPR is a provision that transitions all new employees from a defined benefit pension to a 401k individual retirement plan. Proponents claim that passing CPR and making the switch over to 401k plans for new employees will save the city billions of dollars. But that’s a fair bit of creative license.

All indications are that CPR is very popular. And when you first hear about the signature piece of the measure, it sounds reasonable. City employees should receive similar benefits to what people get in the private sector, proponents will argue. Sounds fair, right? But what proponents don’t tell you is that changing over to a 401k actually costs the city a significant amount money.

As Liam Dillon pointed out last June, by passing CPR, San Diegans are voting to spend $94 million over the next five years to implement the 401k program.

94 million dollars that could keep firefighters on duty and police officers on patrol.

94 million dollars that could help keep libraries open for longer hours across the city.

94 million dollars that could go to fix streets and help maintain our city’s crumbling infrastructure.

Mr. DeMaio knows that the less the public knows about the measure, the more likely it is to pass. And by suggesting that the 401k is integral to pension reform, DeMaio and his allies are being disingenuous. In reality, the 401k provision will actually make it harder for the city to pay its pension costs in the short term.

Further, very little of the billions of dollars in projected savings comes from the 401k provision: 87% the savings in CPR comes from the freezing of pensionable pay, a separate provision in the measure that has legitimately earned consensus support.

Not only does the switchover cost the city significantly in the short term, its long-term savings numbers aren’t even guaranteed. Plus, it presents a major challenge for the city in how it deals with Social Security for its employees.

So what can we do about the gap between myth and potentially devastating reality that will head to the voters in four months?

We can fight CPR tooth and nail and try to beat it in June on its merits. But we’re already behind.

Or we can present voters an alternative to CPR. It’s not too late. Councilmember Alvarez floated such an alternative last week, a competing ballot measure that takes the core reforms of CPR but leaves out the reckless 401k provision. He officially released it yesterday.

I think we can do both, and we need to do both. CPR is a bridge too far and as a result, it’s bad policy. And San Diegans should stand up and say so. But we should also provide voters with our own version of what a fix should look like – a reasonable alternative to the radical changes DeMaio is pushing.

{ 3 comments… read them below or add one }

avatar CitizenKurt February 8, 2012 at 11:15 am

A great article that puts this mess into terms ANYONE can understand.
Down with DirtyDeMaio!!

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avatar top shelf February 8, 2012 at 1:53 pm

Ans what concrete alternative do you propose?

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avatar RB February 9, 2012 at 11:10 am

Of course the article could have been titled:

What $2.1 Billion Would Do in San Diego Instead of Paying for Current Mismanaged Defined Benefit Program.

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