As outlined in the staff report, the settled agreement saves taxpayers over $1.7 billion over the next 30 years, primarily in four ways:
- reducing the pensions for future hires and for employees hired since July 2012, relative to pre-Measure B pensions ($1.15 billion savings over 30 years).
- closing the retiree healthcare plan, ensuring that taxpayers will not contribute to the retiree medical plans of future hires ($244 million savings over 35 years)
- eliminating the “bonus check” that retirees received when market returns exceeded expectations ($270 million savings over 30 years)
- constraining costs of disability programs by implementing an independent board of medical experts to make disability determinations, and by offsetting disability with prior workers’ compensation payments.
For calculations of those savings, see the actuary’s letters in the Council report (Attachment B, pages 31-40).
Most of the savings come from reducing the pension benefit offered to employees prior to the passage of Measure B. Since Measure B’s passage in 2012, new employees have seen a much lower pension benefit. The settlement strikes a balance between two extremes, but will solidify the savings from the elimination of the SRBR through Measure B while achieving significant long-term savings through revisions to the retiree healthcare plans and Tier 2 pension.
Importantly, the agreement ensures that we can offer benefits that are competitive with other California cities’ police and fire departments. The standard benefit in California, known as “PEPRA,” provides police officers and firefighters with a benefit that pays 2.7% of total final salary for every year worked for that agency. The City’s benefit mirrors the PEPRA formula, but costs taxpayers less money in two key ways: by setting an 80% cap on the total pension and by back-loading the 2.7% accrual rate in the latter years of the employee’s service. This way, San Jose taxpayers can save money while long-serving police and firefighters receive a benefit competitive with that of other cities.
A full description of the benefits of this settlement agreement can be viewed in this op-ed authored by Mayor Sam Liccardo and Former Mayor Chuck Reed.