SAN FRANCISCO RETIREMENT FAQS
In early March 2011, hundreds of Local 21 San Francisco members attended retirement and
healthcare security meetings at worksites across the city. The meetings were designed to update
members on San Francisco retirement and healthcare talks and to solicit feedback that will
inform what direction our union should take in these discussions.
Throughout these meetings, members raised questions about different types of pension plans, the
San Francisco retirement system, and threats to retirement security for city workers. This
document is an effort to provide detailed responses to the most frequently asked questions.
What is the difference between a defined benefit pension and a defined contribution plan?
Defined benefit pensions guarantee retirees a fixed benefit level including a predictable monthly
retirement income for as long as they live. In a defined benefit plan, the amount of the
retirement benefit is determined in advance. This amount is based on the employee’s age, salary,
and/or years of service. Both employers and (in most cases) employees contribute to the pension
each year and hire professional asset managers to get the best return on investment. The
employer’s contribution may increase or decrease from year to year with varying investment
returns. Market risk is assumed by the employer and the employer is responsible for funding the
plan as needed to provide fixed retirement benefit levels.
Defined contribution plans, such as a 457 plan, are individual savings and investment plans.
Contributions to the individual savings plan are made by employees, usually with some match or
other contribution by employers. Rather than guarantee a fixed benefit level at retirement, the
employer only guarantees that it will contribute a specific amount of money, a “defined
contribution,” at regular intervals. At retirement, there are no guarantees of any specific benefit
level. The employee’s account balance depends on how much has accumulated in the fund,
whether any money has been withdrawn, and the fund’s investment earnings. Market risk is
assumed by the employee.
Local 21 is opposed to substituting defined contribution plans for defined benefit plans.
Defined Contribution plans cost more to administer than Defined Benefit plans.
• Defined benefit administrative fees = 11¢ per $100 invested.
• Defined contribution fees = $1.35 per $100 invested
• Defined contributions cost an extra $1.24 out of every $100
• In a system like SFERS, worth $11.9 billion dollars, that is a fee difference of over 1200%
worth $147 million that will go to Wall Street firms instead of into your retirement fund.
What is the retirement plan that CCSF workers currently have? How is the pension
calculated?
San Francisco city employees have a defined benefit retirement plan, the San Francisco
Employees Retirement System (SFERS).
Qualifications: City employees can retire as early as age 50 with 20 years of service or at age 60
with 10 years of service.
Contributions: Almost all City employees contribute 7.5% of their salary to the retirement plan
each year. The City pays the remainder based on actuarial numbers, currently 13.56%. The
City’s contribution may increase or decrease each year depending on the fund’s investment
returns and other factors. City contributions are expected to increase dramatically over the next
few years.
Benefit Formula: The amount of money a retiree earns each month is calculated by multiplying:
Years of Service x Age Factor* x Final Compensation**. The maximum benefit payable is 75%
of your final compensation.
Example: If an employee retires at age 60 with 15 years of service credit and earns an
average of $4,000 each month over her final two years of employment, the monthly
retirement benefit would be calculated as follows:
15 x 2.1% x $4,000 = $1,260
* Age Factor: the longer you wait to retire and the older you become the higher the Age Factor.
The Age Factor ranges from 1% at 50 to 2.3% at 62.
** Final Compensation is the highest average monthly compensation in any two fiscal years or in
the 24 months immediately prior to retirement, whichever is higher.
COLA: In addition to the monthly benefit amount calculated above, retirees receive a maximum
2% basic Cost of Living Adjustment (COLA) each year. In years where the fund has excessive
investment earnings, retirees may also receive a supplemental COLA which increases in
increments of 0.5%. The combined maximum COLA is 3.5%.
What Does It Mean That Our Retirement Benefits Are Vested?
Vested benefits are employee benefits that cannot be taken away or changed (absent offsetting
benefits of equivalent value), even if the benefits have not yet been received. An individual’s
retirement benefits typically vest after a fixed number of years specified in the retirement plan.
Thus, most cost-saving changes to a pension plan can only be applied to prospective city
employees and not current employees.
In San Francisco, employees vest for retirement benefits after 5 years. If an employee with 5 or
more years of service, who doesn’t meet the requirements for the full defined benefit pension
plan, ends her employment with the City, she is entitled to a vesting retirement benefit. For
example, if an employee leaves the City after 6 years, she would not qualify for the defined
benefit retirement plan, but would have the right to vesting. She would receive a monthly
allowance after age 50 based on the amount of contributions she put in, matching employer
contributions, investment earnings, and projected life expectancy.
Today, pension benefits are facing more frequent challenges. As states and local jurisdictions
face severe budget shortfalls, they are seeking ways to bypass what has traditionally been
thought of as a vested benefit. DHR has suggested that it might propose reductions in the future
benefit accruals of current employees, a move that would likely violate vested rights.
What is SFERS current fiscal status?1
SFERS is an $11.9 billion system that provides retirement security for over 52,000 city
employees and retirees.
SFERS is over 90% funded. Historically, SFERS has been 100% funded and is considered
among the most solidly funded in the country. However, SFERS still faces real short term
funding problems, and needs to be restored to its previous health.
Like public employee retirement funds across the county, SFERS lost revenue as a result of the
economic downturn. SFERS suffered a $3.5 billion loss. As a result, the City’s retirement
contributions will increase from 13.56% this year (or $276 million) to 18.09% next year (or $434
million), and will increase dramatically over the next 5 years. As noted above, with a defined
benefit program, the employer’s contribution will increase or decrease depending on investment
income.
On the positive side, when the market rebounds, exceeding actuarial projections, investment
income will increase and offset City contributions. SFERS’ investment yield grew by 12.4%
between July 2009-2010, gaining $1.2 billion in value. Despite strong earnings, the City’s annual
pension contribution expense is projected to increase over $100 million per year for the next
several years because the fund’s 2008 losses were nearly three times higher than subsequent
gains.
What are the costs and contributions for miscellaneous and safety workers?2
City workers contribute a portion of their pay to the pension plan each year.
• Miscellaneous employees contribute 7.5% of their pensionable income to the retirement
system each year. “Pensionable income” includes base pay and premium pay, but does
not include overtime.
• With the passage of Prop D in June 2010, police and fire (safety) workers hired after July
1, 2010 pay 9% each year.
The city also contributes based on actuarial valuations of what is needed to maintain the
retirement plan. In FY 2009-10, the city contributed 9.49% of payroll. The city’s contribution
went up in FY 2010-11 to 13.56% and is expected to increase next year to 18.09%.
The increase in the city’s contribution rate is driven disproportionately by police and fire
retirement benefits. For the next fiscal year, the city’s contributions for police and fire
retirement benefits are 28.17% and 38.97% respectively compared with only 14.88% for
miscellaneous employees. However, the City contributes an additional 6.25% to Social Security
for miscellaneous employees, but not for police and fire.
There are huge disparities between miscellaneous and safety workers in both the average
retirement benefit and the portion of SFERS future benefits that each group receives.
• The average miscellaneous worker retires at age 62 with 26 years of service and receives
a $30,400 annual pension.
•
The average safety worker retires at age 56 with 28-29 years of service and receives a
$76,000-$85,700 annual pension.
• Miscellaneous workers comprise 85% of SFERS membership, and are slated to receive
64% of the system’s future benefits.
• Safety workers make up 15% of SFERS membership, but will receive 36% of the
system’s future benefits.
Safety workers have a lower average retirement age and higher benefit as their jobs are more
dangerous than those of miscellaneous employees. Additionally, San Francisco voters have
approved ballot measures that increased police and fire pensions, but rejected measures that
would have increased retirement benefits for miscellaneous employees.
Were there years in which the city did not make pension payments?
From 1998 to 2004 when the market was booming, the city took a six year pension holiday,
contributing nothing for the City’s contribution to the retirement plan. However, during those
years, the City picked up the 7.5% employee contribution to SFERS. The ability of the fund to
withstand the economic downturn would have been considerably strengthened if the city made a
minimum contribution. Under Proposition D, passed in 2010, the city can no longer declare a
complete pension holiday.
What is the current CCSF retiree health plan?3
City employees hired before January 9, 2009 with at least five years of service receive a 100%
city funded retiree health benefit, regardless of whether or not they retire directly from the city.
City employees hired after January 10, 2009 with at least five years of service may receive a
retiree health benefit. Employees must retire directly from the city to receive the retiree health
benefit and the amount of the benefit is based on years of service.
Years of Service
5-10 years
10-15 years
15-20 years
20++ years
Portion of Health Benefit Paid by City
None. Eligible to buy into the retiree medical plan.
50%
75%
100%
Why are retirement benefits a political issue?
Even after receiving millions from a 4.62% concessionary furlough day agreement from city
employee unions, San Francisco faces a projected $350m General Fund deficit in FY 11-12.
While the economy may be slowly improving, the political attack on public employee benefits
and on public employees unions is escalating and looking worse. Much of the attack is centered
around escalating employee benefit costs and occasional abuses like pension spiking. We are
under attack, from Wisconsin, where the Governor seeks to destroy collective bargaining rights
for public employees, to right here in California.
Most of the SF retirement plan’s benefits structure is based on the City Charter, and not
determined through collective bargaining agreements. Therefore, the retirement plan can be
changed through ballot measures approved by voters. Political campaigns, such as Adachi’s
Prop B campaign, tend to distort issues. To make matters more challenging, pension issues are
often complicated to explain to the average voter. The final outcome of a ballot measure is
heavily influenced by money, not the merits of a proposition. All of these factors make our
pension plan vulnerable to political manipulation. Just last year, Stand Up for Working Families,
a coalition of San Francisco labor unions, supported a campaign to defeat Jeff Adachi’s Prop B.
Adachi spent more than one million dollars in his failed effort to pass Prop B.
What is Adachi putting on the ballot?
In San Francisco, Jeff Adachi’s new “Son of Prop. B” ballot measure seeks to undermine
retirement security for public employees. On March 21, Adachi submitted three proposals to the
Department of Elections. He is evaluating the cost savings of each proposal before choosing
which to put on the ballot in November. Adachi’s proposals:
• Raise the retirement age from 60 to 65.
• Lower the pension benefits for new hires with formulas ranging from 1.3% at 55 to 2.3%
at 65.
• Increase retirement contributions for most City workers from 7.5% to up to 18% of
compensation.
His proposals also increase contributions to the Retiree Health Care Trust Fund from 2% to up to
5% for workers who retire after January 1, 2012.
What is the deadline for getting something on the November ballot? 4
In order to get his measure on the ballot in November, Adachi must submit his initiative with
over 46,000 qualifying signatures by July 11.
The Board of Supervisors can also put measures on the ballot by July 29.
Can we stop Adachi’s new measure from passing?
The consensus is that we can, but only if we present an alternative that is responsive to the huge
increases in retirement costs for the City. We will need broad support from the City’s leadership
structure including Mayor Ed Lee and Board of Supervisors President David Chiu. Stand Up for
Working Families, the coalition of City Unions, chaired by Local 21, has taken the lead in
developing such a proposal.
What are the cost estimates for our proposals? Adachi’s proposals?
On March 21, Jeff Adachi submitted three proposals for charter amendments to retirement and
retiree health benefits for City workers. The Controller’s office is just beginning the process of
projecting the cost savings of Adachi’s proposals. We will share this information with Local 21
members when it becomes available.
SUWF’s proposal is not yet finalized, so we can't estimate the cost savings yet. Although we've
worked with actuaries to develop estimates on individual changes, it becomes more complicated
when these options are combined because the cost estimates change. By the end of the first week
in April, we expect to refine a smaller list of potential changes and model how they overlap.
This will enable to us to decide on a total savings target.
What are police and fire doing?
The priority for police and fire is to maintain their 90% benefit level. They are willing to make
higher contributions than miscellaneous employees in order to maintain this benefit level. In
fact, new firefighters and police officers already pay 1.5% more than miscellaneous employees.
As SUWF moves forward in developing our proposal, all parties – high paid, low paid,
uniformed, and miscellaneous employees – must work together to develop a package that is
equitable and balanced. Local 21 is dedicated to keeping this coalition of City employee unions
intact.
Why aren’t we proposing a measure on revenue?
Tax equity is an issue that we are considering. However, the political environment for increases
in revenue is very negative and polling shows that any linkage between public employee benefits
and tax increases is deadly. We are working with other unions and community organizations to
draw attention to the problem, focusing on corporations that have made billions and paid little or
no taxes.
The City has indicated an interest in reducing or eliminating the inclusion of premium pay
in pension calculations. Will SUWF support this?
We are considering exempting premium pay from retirement calculations, but the issue is very
complex. Since there are many different premium pay arrangements throughout the City, we are
developing a master list of all premium pay agreements and how much they cost. Changing or
reducing the number of premium pay provisions that are part of a worker’s pensionable income
is a popular idea with the public, but won't save a lot of money for the City.
SUWF believes we may have to reduce or eliminate some but not all premium pay provisions
from the retirement formula. Some provisions referred to as premium pay are actually more
longevity steps, and others are incentive pay. We need to develop a common definition of what
qualifies as a premium pay. This issue won’t be easy to resolve and any input would be
appreciated.
We keep giving back, at what point do we accept layoffs?
For FY 2011-12, Local 21 and other unions are not likely to make additional concessions to
avoid layoffs. These decisions will be made only after extensive membership discussions.
However, pension changes will not take effect until the next fiscal year and have no bearing on
layoffs.
What can we do?
SUWF is working with select City leaders to develop an alternate ballot measure that will
simultaneously “reform” and protect our benefits, while saving the City money.
We’re performing research to find a fact-based, equitable alternative to Adachi’s plan. At the
same time, Local 21’s Executive Committee recently committed significant funds to fight
another November ballot measure put on by Adachi.
Local 21/SUWF is exploring what types of proposals would make sense for our members, what
would make a difference, and how much money these possible changes would really yield.
What can you do?
• Sign up for the T.J. Anthony Fund to strengthen our political action
• Join the Rapid Response Team
For more information and to become involved with the upcoming campaign to save health care
and retirement security, visit www.ifpte21.org, or contact Kim Carter directly at
kcarter@ifpte21.org, tel. 415-864-2100.
1
“San Francisco Employees’ Retirement System Annual Report for Fiscal Year Ended June 30, 2009,” San
Francisco Employees’ Retirement System, 30 Jun 2009.
“City and County of San Francisco Employees’ Retirement System July 1, 2010 Actuarial Valuation,” Cherion, Jan
2011.
2
“Prop D Retirement Benefit Costs,” League of Women Voters of California Education Fund, 7 Mar 2011,
<http://www.smartvoter.org/2010/06/08/ca/sf/prop/D/>.
“City and County of San Francisco Employees’ Retirement System July 1, 2010 Actuarial Valuation,” Cherion, Jan
2011.
“San Francisco Employees’ Retirement System Annual Report for Fiscal Year Ended June 30, 2009,” San Francisco
Employees’ Retirement System, 30 Jun 2009.
3
City and County of San Francisco Charter, Section A8.428.
4
John Arntz, “Calendar for the November 8, 2011 Municipal Election,” CCSF Department of Elections, 7 Oct 2010.