Last night, SF Weekly broke the news that the city's pension obligation could balloon based on the outcome of a retirement board meeting this morning.
Well, it has. The city's contribution to its pension plan might jump by $60 million in the next year alone, adding to San Francisco's already gaping budget deficit. And, thanks to Proposition C, "The Mayor's Pension Plan," city workers may be feeling the burn, too.
Last month, the retirement board took its actuary's advice, and lowered its anticipated investment return rate from 7.75 percent to 7.5 percent. This morning, a motion to reconsider that vote failed. As a result, the city will be mandated to greatly augment the "employer contribution" to its pension plan, as its assumed investment returns just shrank.
Mayor Ed Lee told the Examiner
that he would have preferred the investment assumption remain at 7.75 percent, as a lower rate would "make things harder for us in budgeting and finding an extra $60 million" for pension contributions. (The city's projected deficit of $263 million also just ruptured).
Lee's assertion makes sense -- until you give it a moment's thought. Yes, it's inconvenient to have to sink far more than anticipated into pension costs. But the alternative is to rely on an overly rosy investment return rate -- and seriously underfund the system if the market tanks or even merely underperforms. Extending Lee's logic, the city could blithely -- and crazily -- assume a 10, 20, or 40 percent return and pay even less
into the system. Until it catches up with us.
Supervisor Sean Elsbernd, a member of the retirement board, described today's move as the harbinger of a short-term fiscal burden that would help out the city in the long term.
The $60 million figure is, at this moment, not set in stone. Figures ranging from $30 million to $80 million have floated out of City Hall. By next month's retirement board meeting, the city's hired actuaries will assess the mandated employer contribution to the pension plan based on the downgraded 7.5 percent investment return assumption. The city currently pays around 18 percent of employee payroll into the plan -- upwards of $420 million -- a figure that will surely rise.
If it expands past 20 percent, per the provisions of Prop. C, city employees will be forced to kick an extra 0.5 percent of their paychecks into the pension hole. "I do believe city employees will be paying more than they believed they would in November," notes Elsbernd.
That determination should be made at the retirement board's Feb. 8 meeting -- just in time for Valentine's Day.
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