Proposition B, a ballot initiative in San Diego to be voted on June 5, would give most new municipal employees a 401k defined contribution plan rather than the existing defined benefit pension plan.
Exempted from the plan would be new police officers. Additionally, a freeze on the amount of compensation used to calculate pensions will be put into place for five years.
The city’s auditor found that the freeze will save $963 million and the 401k program would actually cost $13 million, for a net savings of $950 million. A great deal of the new ballot initiative rests on the notion of “base compensation,” which is how pensions are calculated.
A legal opinion by the city concluded that additional pay can be provided to city employees without risk of increasing pension payouts to those same individuals.
Base compensation is currently defined as “the base salary or wages paid (standard hours multiplied by the hourly rate) on a regular bi-weekly bases to an employee for his or her services in any given period.”
One way around giving pay raises would be to create a new pay category for merit or pay-for-performance and excluding that pay from retirement benefit calculations. This pay would given separately from regular bi-weekly pay checks. This new pay category would not require a city ordinance and therefore Retirement System members would not have a vote.