City Retiree Health Changes to Save More Than Expected

The city of San Diego's new retiree health care package for its employees will save future budgets more money than first thought because most workers opted for a 401(k)-style plan, Mayor Jerry Sanders announced Thursday.

Agreements were reached last year with the city's unions on the new retiree health care package, which offered three options for workers.

City officials expected about 3,000 of the eligible employees -- those hired before 2005 -- to opt for the plan that is similar to a 401(k) and is cheaper for the city in the long run. Instead, about 5,000 did, Sanders said.

When the deals were announced last year, Sanders touted them as the biggest money saver in city history, about $714 million over 25 years. Now, the cost reduction is estimated to be about $802 million.

"It's a lot more money than we anticipated when we put this retiree health care reform package together," Sanders said.

Since retiree health care payments were cutting deeper into the city's budget pie, the money from the savings can be put into services like police, fire, parks and libraries, he said. He added that the savings won't be realized until at least five years into the future, but will then accelerate.

Sanders said there will be no impact on the budget for the next fiscal year -- which begins July 1 -- because people have to be switched into the new plans.

The unfunded liability in retiree health will be reduced from $1.13 billion to $568 million, according to city estimates.

According to the mayor and Chief Operating Officer Jay Goldstone, the 401(k)-style plan became popular because it covers family members and offers things like dental coverage, which the other two options don't do.

The city will pay between $95,000 and $100,000 into the 401(k)-type plan for each of the 5,000 or so workers who chose it when they reach a certain age with enough employment time, according to Goldstone. For most city employees, that's age 55 with 20 years of service, while public safety workers are eligible at 50 years old and 20 years of service, he said.

Goldstone said the advantage to the city is that it's the only payment for retiree health that it will have to make.

-City News Service