Pension wildfire tough to contain
There are 18,000 plus retirees, and thousands more are in the system. The overall cost to cover these retirements is more than $8 billion, an increase of $170 million.
“That's what you need in the bank today earning 7.5 percent interest between now and the time they retire,” said former city attorney Mike Aguirre. “So, when they do retire, you can start making payments to them and have enough money to pay all the way out to the end.”
Aguirre is a pension expert. He says the amount of money in the system is over $2 billion less than what we should have because past councils greatly increased benefits while paying less into the system.
“This is the thing that's killing us financially, because there's no other cost in the city that automatically gets paid. There's a value judgment that says the most important function of the city of San Diego is to pay pensions.”
Aguirre says the actual cost of covering pension benefits earned this year is $50 million, but the bill to the taxpayer is $263 million.
“The reason for that is that we pay the interest on the difference between the $8.3 billion and what we actually have, which is approximately $2 billion less than what we need.”
The system guarantees it will earn more than 7 percent interest on its investments. When it doesn't, the taxpayer makes up the difference.
“We as the city of San Diego are guaranteeing a 7.5 percent interest return on the money that we don't have in the system to pay the benefits.”
That $263 million the actuary has assessed the city is $12 million lower than last year because of the five-year pay freeze, and a slight increase in investment returns. Still, the overall debt has risen by $170 million.
“Its good to celebrate the $12 million, but I'm a little concerned about the $170 million. That's a big number that always goes up.”