Employee Retirement Pension Reform

By Matt Grocott

When city councils of the past gave employees the retirement benefit packages that weigh us down today, they were following the state into unchartered territory. Today we are seeing the results at all levels of government but especially with the cities that are declaring bankruptcy. San Carlos needs to transition our employees from "defined benefit" to "defined contribution" retirement, mirroring the 401K type program offered in the private sector.

A few years before I was first elected to the San Carlos city council, Governor Davis and members of the CalPERS board made dramatic changes to the state's retirement program. One change was to introduction the 3 percent at 50 formula for public safety employees. (The formula means an employee who retires at age fifty receives 3 percent of their last year's salary, multiplied by their years of service in the CalPERS system). Cities like San Carlos were soon pressured to follow suit. Those who worried about affordability were told by William Crist, the CalPERS board president, along with other "experts," that everything would be covered by the pension fund's market returns. In fact, cities were encouraged to make zero contributions in certain years that the stock market made handsome gains. (In those years, employees still paid their share but the cities paid nothing).

Today we are faced with the truth. Stock market gains cannot be relied upon to make up for what we cannot afford to pay. In addition, it is unfair to put the risk on the tax payer when the results hoped for do not materialize. If the city's retirement program was "defined contribution" and paid according to available funds, then to rely in part on market performance would be acceptable. I am calling for San Carlos to transition to a "defined contribution" program and to move the city out of CalPERS, unless CalPERS sees fit to offer such a program. The details of how we make the transition are negotiable but the direction we must take is clear. We can not afford to sit and hope for blue skies while storms like those that hit Vallejo and Stockton grow on our horizon.