Reform 4.10: Affordable Pension Plans

Transition to Affordable Pension Plans.

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The current level of pension benefits are not only unaffordable to city taxpayers, but may be also unaffordable to city employees – in the event that city employees are required to pay a fair share of the cost of the benefits. That’s why the Roadmap to Recovery proposes the establishment of additional pension tiers and options for city employees: Defined Contribution Plan The city should immediately provide a simple 401(k) plan to all new hires and offer existing employees the ability to “freeze” their current pension benefit levels by leaving the system and enrolling in the 401(k) plan immediately. DB-DC Hybrid Plans The General classification employees already have a hybrid pension plan that is more affordable. Police Officers have a lower tier defined benefit plan, but it is still quite costly. Under Prop D Firefighters were expected to receive a plan similar to the one created for POA. The Roadmap to Reform believes a more affordable hybrid plan should be offered to Police and Fire employees. In addition to creating these more affordable hybrid plans for new employees, the city should adopt the policy to allow all existing employees to downgrade from higher tier to these lower tiers. Implementation of this policy will have to await final approval from the Internal Revenue Service. We also obtained an actuarial analysis of a potential “opt-out” program, where City employees would leave the current system and opt into a hybrid, where a Defined Benefit reduced by 50% was packaged with a 5% defined contribution match. Different take-up rates for public safety and general employees were assumed, with the potential savings from such a program under three different take-up scenarios shown on the next page: [Charts omitted]

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