Pension reform: It pays to exempt public safety E-mail
Written by Jeff Jordon   

For decades, San Diego used benefits like DROP, retiree health benefits and pensions in place of competitive salaries to recruit and retain police officers. Poorly funded and designed, San Diego found itself with large liabilities due to these programs. Since 2005, the city has either eliminated or modified the majority of these benefits for new employees. Pension costs were shifted onto officers who now pay 13 percent to 19.5 percent of their annual salary to fund their pensions, one of the highest contribution rates in the state.

Understanding the costs associated with these changes and employee behavior is essential before the city considers moving to a 401(k) or defined contribution retirement plan. For instance, 840 police officers (about half of the sworn staff) left the San Diego Police Department when the city began changing benefits it relied upon to recruit and retain officers. More than 200 of them went to other agencies.

The capital investment in police officers is significantly different from other city employees. It costs about $127,000 to recruit and train a single officer in his or her first year. Roughly $560,000 is invested in that officer over the first five years with the department.

Since the vast majority of the officers who went to other agencies were veterans, city taxpayers suffered a loss of $100 million invested in officers who now work in other cities. Moving officers into a defined-contribution plan based on fairness to other employees, as Councilman Carl DeMaio argues, is fiscally irresponsible considering the true costs of recruiting and retaining officers.

What would be the immediate impact of shifting police into 401(k)-style plans? First, such a switch would not produce immediate savings. In fact, costs would climb in the short term. Second, implementing a 401(k) plan in a city that already does not provide competitive salary and benefits to its police officers would require a dramatic increase in the compensation packages for new hires.

In 2007 and 2008, San Diego needed to increase pensionable pay - salary and benefits used in the pension calculation formula - by 15 percent to stop the exodus of officers. Moving to a 401(k) plan would require a much larger financial commitment. Where would the city get the money to pay for the costs involved in the change and for a probable immediate spike in retirements?

It certainly would not come from taxpayers and presumably not from philanthropy. DeMaio may argue the money needed would come from a cap on pensionable pay. Yet attorneys with extensive expertise in this field believe that placing a cap on pensionable pay violates state collective bargaining laws and the local Corbett settlement.

Thus, if DeMaio's ballot initiative includes a cap on pensionable pay, it could produce more litigation - not pension reform. The city also would lose the flexibility of increasing pensionable pay if the employment market warrants it in the future. DeMaio's argument that savings could be achieved when officers voluntarily switch to defined-contribution plans is not viable.

The IRS does not currently allow this option. If it were permitted, it is unlikely existing employees would choose to switch voluntarily.

Taxpayers should want police and firefighters to remain with the city for their careers, especially after investing in their training. Traditional defined-benefit pension plans are a key mechanism for their retention and allow them to retire when aging limits them from performing their full duties.

DeMaio's 401(k) plan for public safety employees is poor public policy and is legally and fiscally flawed. It does not solve the costs and outstanding liability of the current pension system.

The San Diego Police Officers Association believes that true pension reform and lower costs for taxpayers and officers can be achieved only by working cooperatively with Mayor Jerry Sanders.

Jeff Jordon is vice president of the San Diego Police Officers Association and a 17-year law enforcement veteran.


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