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The City of San Jose is going bankrupt because of Police and fire Pensions – what is the progressive position on cutting those benefits?

The City of San Jose is going bankrupt because of Police and fire Pensions and has put a change in those pensions, for all workers, for all work performed in the future but preserving the pensions earned to date, on the ballot.

The Police and Fire Department Retirement Plan provides benefits to sworn employees in the Police and Fire Department, and the Federated City Employees’ Retirement System provides benefits to all non-sworn eligible employees. http://www.sanjoseca.gov/employeerelations/retirementbenefits/reports/PensionActuarialValuationDated03.2012.pdf reveals the current benefit for all employees is based on a final salary based on highest 12 months where maximizing the salary with overtime the year before retirement is allowed to blow up the pension to any level. The formula applied to that final salary is years of service times a factor where years of service can be blown up by the purchase of additional credits for military service, Federated service, and “leaves of absence”. Retirement can begin at age 50. The factors applied for police is 2.5% per year for 20 years plus 4,0% for the next 10 years to a maximum of 90% of salary earned by age 48, while for fire it is 2.5% of service for 20 years plus 3.0 % for the next 13.3 years for a maximum of 90% of salary at age 53.3. Disability pensions are 32% of Final compensation plus 1% for each year in excess of 2 years to 50% after 20 years and with same factors and 90% max as other employees after 20 years of service. Full pensions paid at age 50 with 25 years of service, or age 55 with 20 years of service, or age 70 with no service requirement. Reduced benefits for those with with limited service begin at age 50. Police and Fire Union leaders say it is unconstitutional to change the rights of current city workers to future benefits based on future work and say they plan to challenge the ballot measure in the courts if voters pass the measure.

The city says cutting back the pensions will allow it to re-open the new library, built at a cost of $8 million, and indeed to re-open the three city libraries that were closed so as to pay the annual pension cost that, because of union contract increases to pensions demanded and conceded by the city over the past 11 years, has made the pension budget increase from $73 million in 2001 to $245 million this year. Retirement benefits now consume more than 50 percent of the city’s payroll costs. To pay those pensions, the city has cut 2000 jobs, including 49 firefighters and 66 police officers, and has had to close the new police station.

After the Mayor demanded a reduction in the 90% of Salary at age 50 pensions to 65% of salary at age 50, the union demanded the cut be no deeper than 75% of pay at age 50.

City worker – teacher – pensions tend to be modest across the country. What should the progressive position be on these police/fire pension contracts? The police/fire unions have begun to support the GOP across the country, but even ignoring that and saying we want to support unions on basic principles, should we support these kinds of benefits? As an actuary I know there are many many jobs more dangerous than police/fire that get much less in both pay and benefits (logger comes to mind), but these folks are protecting us and I am grateful. Greece was going under because of the age 50 pensions and ended those pensions – and the San Jose pensions after cut back will STILL be age 50 pensions. How much is too much to pay for police/fire union political support? Can we be for unions and still be in favor of less being paid as pensions to police/fire workers?

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