Adachi Finalizes Pension Plan, Starts Gathering Voter Signatures

New proposal ignores health care costs, creates separate pension package for new hires
By: Elizabeth Lesly Stevens

Updated April 18, 2011 at 10:14 p.m. with comments from Jeff Adachi

City Public Defender Jeff Adachi has settled on a pension-reform proposal and is starting to gather voter signatures to place it on the November ballot.

Adachi had filed several different proposals in recent weeks with the city Board of Elections. 

His final proposal would require all city employees and elected officials to pay 7.5 percent of their salaries in to the pension fund. Police and firefighters would pay 10 percent, since their pension packages are more lucrative. Pension-fund contributions are estimated to cost the city nearly 30 percent of employee payroll by 2015.

The plan would also raise the retirement age of employees hired after January 1, 2012 and also cap pensionable income for new employees at $140,000.

To try to avoid pension "spiking," or boosting the final salary used to calculate retirement benefits, the plan would base police and fire pensions on an average of their final five years of compensation.

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The plan would also eliminate the supplemental cost-of-living increase, or COLA, that city retirees receive if the pension exceeds certain performance targets. This year, a $170 million supplemental COLA was paid out, even though the pension fund is not 100 percent funded. Adachi's measure says that no supplemental COLAs can be paid as long as the pension fund is less than fully funded.

Adachi's Proposition B, a proposal that would have required city employees to contribute more toward their pension and benefits costs, was defeated last November. 

In this latest effort, Adachi has modified several elements of Prop. B that caused confusion or sparked the sharpest criticism. 

City employees earning less than $50,000 would not be affected by his current proposal. Also explicitly excluded from the plan are employees of the San Francisco Unified School District, the San Francisco Community College District, and any public employee who participates in the California Public Employees Retirement System, or CalPERS. 

City employees who have already retired would not be affected at all, nor would "widows and orphans of public safety officers who die in the line of duty," Adachi's measure says.

The most sweeping structural change in Adachi's proposal is the creation of a separate pension plan for any employee hired after January 1, 2012. These employees would not be eligible to join the city's existing pension plan. "The new plan provides for a reduced level of benefits, at lower contribution rates, than exist for current employees," Adachi's measure reads. 

Existing employees who wished to contribute less of their salaries toward their pensions could choose to participate in the new pension system.

Adachi says a key difference between his plan and that being formulated by the city's unions and local investor and philanthropist Warren Hellman (also chairman of The Bay Citizen) is that "our plan requires safety employees to contribute more towards their pensions while the Hellman-labor plan only requires new safety officers to pay more.  This is a critical distinction since police pensions cost twice as much as non-safety and fire pensions three times as much.  Under the Hellman-labor plan, the non-safety employees will subsidize the increased costs of the safety employees."

Adachi's new plan does not address health-care costs at all. "We decided to focus exclusively on solving the pension crisis, since Mayor[Edwin] Lee has made it clear that he will move forward with a Charter Amendment on health care costs," Adachi wrote in an email. "The Mayor will seek to change the composition of the health service system board, which now has a majority of city employees. The Board decides how much city employees pay for their health care and what kind of coverage they receive.  The unions are vociferously opposing this, so this will be an entirely separate battle from pension reform."

The city's unions last week made progress toward finalizing the pension and benefits reform proposals they have been working on since last fall. Their plan, which union officials say they will present to City Hall officials this week, proposes higher employee contribution rates toward the city's pension fund and would cap pensionable income and raise retirement ages.

Adachi said via email that his plan is more "progressive" than the union plan. The public defender's "requires city employees who earn more to contribute more towards their pensions when the taxpayers' costs increase, while exempting lower paid employees," he wrote. "Labor's proposal is capped at 2-4% increase in ALL employees' pension contributions."