By Khalida Sarwari
San Jose City Council members on Tuesday voted unanimously to take the first step toward eliminating their own pension plans.
Councilman Pete Constant, who proposed that the council and mayor lead by example and terminate their plan with the California Public Employees’ Retirement System, said the council’s decision would “get the ball rolling.”
The council voted to notify CalPERS of its intent to withdraw from the benefit plan. CalPERS will then respond with a calculation of the cost of termination.
“I think this is the right thing to do for today’s purposes,” Mayor Chuck Reed said.
The city has contracted with CalPERS to provide retirement benefits for its mayor and council members since 1998.
The CalPERS retirement plan allows the mayor and council members to retire at age 55 and benefits to accrue at the rate of 2 percent for every year of service.
In the past fiscal year, the cost of the pension plan has increased from $130,727 to $159,827 and the plan is underfunded by half a million dollars, according to Constant.
Retired council members would not be affected by the termination and current members would retain benefits they have earned.
Constant said it doesn’t make sense to have a pension plan for council members, who only serve for eight years or fewer.
“Defined benefit plans are traditionally used to encourage long-term tenure among employees and minimize employee turnover,” Constant wrote in a memo.
In the face of ongoing budget shortfalls, the council voted last month to place a controversial pension reform measure proposed by Reed on the June 2012 ballot.
San Jose has billions of dollars in unfunded liabilities for retirement benefits for its employees.
Reed’s proposal calls for setting limits on retirement benefits for new employees and retirees, but the ballot measure would not reduce payments to current retirees or cut accrued benefits that employees have earned for the past five years of service.
