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Office of Mayor Chuck Reed
200 East Santa Clara Street
San José, CA 95113
Departments & Offices
Departments & Offices I-O
If you have trouble viewing, watch the clip on
Mayor Reed's youtube channel
Mayor Chuck Reed has made retirement reform a top priority in his efforts to close the City's enduring budget deficits, restore services to the community, and protect the long-term health of the City's retirement systems.
The City of San José has seen its retirement costs increase dramatically over the past decade, from $73 million per year in FY 2001-02 to $245 million per year in FY 2011-12. More than 20% of the general fund is now dedicated to retirement benefits and the City's two retirement funds have nearly $3 billion in unfunded liabilities. Without reform, these unsustainable costs will destroy the City's ability to deliver basic services to its citizens.
Learn more about the City's pension problems
Under Mayor Reed's leadership, the City Council has made significant progress in bringing the City's unsustainable retirement costs under control.
While the city's employee unions have filed lawsuits challenging a number of these changes, the retirement reforms that have been implemented and upheld in court are generating more than
$25 million in
Those savings have made it possible to avoid service cuts and slowly begin to restore service in the past three budgets. The City also stands to gain tens-of-millions of dollars in additional annual savings as the lawsuits are resolved.
Read below to learn more about San Jose's efforts to achieve meaningful retirement reforms.
San Jose's Pension Reform Ballot Measure
On June 5, 2012, San José voters approved a pension reform ballot measure (Measure B) with nearly 70% of the vote. The ballot measure was a key component of Mayor Reed’s drive to control skyrocketing retirement costs, restore services to the community, and protect the long-term health of the retirement plans.
The City Council placed Measure B on the ballot after more than 8 months of negotiations with our employee unions. While we were unable to reach an agreement, the final set of reforms included a number of changes to address concerns raised during these negotiations.
The pension reform ballot measure:
Places limits on pension benefits for new employees
The ballot measure establishes the maximum parameters of a new, lower-cost pension plan for future employees (the specific design of the plan will be the subject of negotiations with the City's employee unions):
New employees will contribute 50% of the total cost of the new plan.
The plan could be a hybrid consisting of: 1) Social Security, 2) a defined benefit component, and/or 3) a defined contribution component.
component will have to meet the following requirements:
Retirement Age: 60 for public safety employees and 65 for all others; employees would have the option to retire earlier with reduced benefits.
Accrual Rate: could not exceed 2.0% (of salary) per year of service, with a 65% maximum benefit.
Benefit would be based on the highest average salary over a 3-year period.
Cost-of-Living-Adjustments: based on CPI, capped at 1.5% per year.
The City can also contribute to a defined contribution plan as long as the City's total cost for the retirement benefits does not exceed 9% of an employee's base salary.
Preserves pension benefits that current employees have earned and accrued to date.
, they will have the option to a) pay more and keep their current plan, or b) choose a new, lower-cost plan
Current employees will retain benefits earned and accrued to date under the existing pension plans. Going forward, they will have two options:
Employees contribute an additional 4% of salary (starting in June 2013) to help pay off the pension plan’s unfunded liabilities. These extra contributions could increase by an additional 4% per year until they cover 1/2 of the cost of paying off the unfunded liability or reach a cap of 16%.
Employees switch to a more modest retirement plan for their remaining years on the job:
Retirement Age: 57 for public safety employees and 62 for all others (increase would be phased in over 14 years); employees would have the option to retire earlier with reduced benefits.
Accrual Rate: 2.0% (of salary) per year, for future years of service.
Benefit based on the highest average salary over a 3-year period.
Cost-of-Living-Adjustments: based on CPI, capped at 1.5% per year
Allows the City Council to temporarily suspend retirees' Cost of Living Adjustments (COLAs) during a fiscal and service level emergency
In the event that the City Council declares a fiscal and service level emergency, the Council will have the ability to suspend retirees' 3% annual COLA for up to 5 years. (Retirees would not see their pension payments reduced)
Reforms disability retirement rules to prevent abuses
Employees who are seriously injured and can't work will still qualify for a disability retirement.
Determinations of disability will be made by an independent panel of medical experts.
The City may provide matching funds for disability insurance for employees who do not qualify for disability retirement but incur lost wages.
Discontinues "Bonus" Pension Checks from the Supplemental Retiree Benefit Reserve (SRBR)
Requires voter approval to enhance retirement benefits in the future
(other cities, like San Francisco, already require this)
Pension Reform Ballot Measure Fact Sheet
for more details on these reforms
View this chart detailing
employee pension benefits under the ballot measure
Legal Challenges to Measure B
A number of city employee unions have filed lawsuits to block the pension reform ballot measure. In February 2014, the trial court issued a ruling validating 12 of the 15 provisions of Measure B, including: the creation of lower-cost pension benefits for new employees, elimination of supplemental "bonus" pension checks, and retiree healthcare plan changes, which together are already saving the City of San José more than $20 million per year (these ongoing savings vastly exceed the one-time costs of defending the measure in court). However, the judge did invalidate the increased pension contributions / optional lower-cost plan for current employees. City leaders are currently evaluating a potential appeal.
Visit the City Attorney's website to view
related to the pension reform litigation
Mayor Reed's statement
on the trial court's legal decision
public legal opinion
from the Meyers Nave law firm regarding the ballot measure
Iowa Law Review article
by Amy Monahan, Professor Law at the University of Minnesota commenting on some of the legal issues raised in court case on San José's pension reforms.
View Additional Documents Related to the Pension Reform Ballot Measure
2nd Tier (New Employee) Retirement Plans
Since the voters approved Measure W in 2010, the City Council has been working to create a lower-cost retirement plan for future employees. These "2nd tier" plans will generate significant savings in the coming years as new employees are hired to replace the existing workforce.
In August 2012, the City of San Jose established a new
2nd tier plan for new civilian (federated) employees
hired on or after September 30, 2012.
In June 2013, the City Council approved an ordinance creating a
2nd tier pension plan for new police officers
hired after August 4, 2013.
Both 2nd Tier plans offer new employees a more affordable, but still generous, pension benefit that is within the limits established by Measure B, the city’s pension reform ballot measure (see above section).
The City of San Jose has not reached an agreement with its firefighters union over a 2nd tier plan and is currently seeking binding arbitration to resolve the dispute.
Retiree Healthcare Plan Changes
In June 2012, the City Council adopted modest changes to the City's retiree healthcare plans that will generate significant cost savings and help reduce the plans' huge unfunded liabilities. Specifically, these changes will reduce the cost of healthcare for retirees under the age of 65, whose benefit is particularly expensive since they can not yet enroll in Medicare.
Currently, retirees under the age of 65 pay NO monthly premiums for the Kaiser Permanente $25 co-pay plan. This is a more generous benefit than active employees receive.
Starting in January 2013, a new deductible healthcare plan will be added to the City's menu of healthcare options. Retirees under the age of 65 can choose this new deductible plan and still pay NO monthly premiums; or they can choose a different plan and pay the difference in cost.
Note: Retirees 65 and over have NOT seen any changes to their healthcare plans (when a retiree turns 65, he/she is required to enroll in Medicare and can choose one of the City's Medicare supplemental insurance plans, which are less expensive than the City's other healthcare plans).
Learn more about the
Retiree Healthcare Plan Changes adopted in June 2012
In June 2013, the City reached agreements with nine of its employee unions (representing civilian employees in the Federated Retirement System) to exclude newly-hired employees from the current retiree healthcare plan and continue exploring long-term solutions that will control the escalating retiree healthcare costs that are borne by both the City and active employees.
Read more about the June 2013 agreements
Visit the Office of Employee Relations website for additional information on
Retiree Healthcare Reforms and Negotiations
200 E. Santa Clara St.
San José, CA 95113
408 535-3500 Main
408 294-9337 TTY
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