- The Washington Times - Monday, February 20, 2012

San Diego Mayor Jerry Sanders has spent more than six years in office trying to dig the city out of a fiscal mess his predecessors and the global economic crisis helped to create, and the city workers’ unions have fought him nearly every step of the way.

But the former police chief, who cannot run again for mayor because of term limits, has saved perhaps his biggest battle with the unions for last.

In developments being closely watched by municipalities across the country, the Republican mayor wants to put all newly hired San Diego city employees, except for police officers, into a 401(k)-type plan, shifting away from the familiar guaranteed retirement benefits of the past. The effort is stirring national opposition from unions fearful that a successful move to privatize pensions in San Diego will have a domino effect in other cash-strapped cities and states.

“We know we’re in for a big battle,” Mr. Sanders said at an event at the National Press Club on a Washington visit earlier this month. “Labor is already trying to block it.”

“If a 401(k)-style plan is adopted in San Diego, other governments will follow,” Mr. Sanders said. His city, he acknowledged, is “the guinea pig in this.”

Even as Mr. Sanders was speaking, news was breaking back in California that a state labor union agency had disapproved of the plan. Local unions teamed up with the state’s Public Employee Relations Board to file an official complaint arguing that the retirement plan violates collective bargaining laws. The decision now sends the ballot measure, planned for June, to the courts for a final ruling.

Mr. Sanders and other Republicans, opponents say, violated labor law by crafting and advocating for the measure as private citizens instead of in their official capacity — a maneuver to avoid the city’s obligations to confer with unions about significant changes to the pension system.

Labor opposition

National labor unions immediately seized on the ruling.

The National Public Pension Coalition, comprising a broad group of unions including the Service Employees International Union, AFL-CIO, American Federation of State, County and Municipal Employees and American Federation of Teachers, held a conference call with reporters denouncing the mayor for collecting a $90,000 city pension for his years on the police force, as well as a $94,000 salary as mayor, while advocating for the “reckless” pension plan that will subject city workers to the vagaries of the stock market.

(Mr. Sanders refused a total of about $192,000 in compensation and chose not to count his years spent as mayor toward his pension. If he had, his annual retirement pay would be much more than the $92,400 he now receives for his 26 years in the police department.)

Unions also point to some states who reconsidered their switch after finding the private systems to be more costly — especially in the early years.

Rep. Bob Filner, a Democrat from the area who is running for mayor, said San Diego workers are particularly vulnerable, because they don’t receive Social Security, a decision instituted before Mr. Sanders came to office.

“To leave them subject to the stock market — it leaves them with no pension, which is immoral,” Mr. Filner said, who also argued that the plan would cost millions to implement.

But the city’s unfunded pension liability is an estimated $2 billion, and the mayor argues that selling more bonds and investing that money in the stock market is too much of a gamble and does nothing to change the unsustainable status quo.

‘Enron by the Sea’

Just before Mr. Sanders took office in 2005, the city was rocked by a pension underfunding scheme that led to a Securities and Exchange Commission investigation and caused the city’s credit rating to be suspended.

The New York Times dubbed San Diego “Enron by the Sea.”

Among a series of changes that have become a model for other state and municipal pensions programs, Mr. Sanders previously helped move city workers to a hybrid pension program. Employees hired after July 1, 2009, contribute more toward their retirement savings and bear more investment risk. Those changes will save an estimated $36 million in the next decade, while a recently approved retiree health care plan will save more than $700 million over the next 25 years.

By making the full shift to 401(k)-style plans, Mr. Sanders estimates the city can save at least $1.2 billion over 30 years. So far, several cities and states — including Colorado, Michigan, Ohio, Georgia, Utah, Alaska, West Virginia, and most recently, Rhode Island — have overhauled their retirement systems to include a partial 401(k)-type plan.

Neil Bomberg, a program director at the National League of Cities, said Mr. Sanders‘ push for a fully privatized plan is unusual. Most cities, counties and states with pension problems are moving to some form of hybrid plan similar to the federal employment retirement system, which includes the Thrift Savings Plan that operates like a 401(k).

“We’ve heard a lot of screaming about pensions, but for the most part, they are not bankrupting cities and towns because on average they only amount to 3 [percent] to 4 percent of a city’s annual expenditures,” Mr. Bomberg said.