L21 Pushing for smaller SFERS Contributions

When Prop C was conceptualized and placed on the ballot with broad union support in 2011, we believed that employee contribution rates would decline in the 2016-2017 fiscal year.

Despite major issues facing the San Francisco Retirement System (SFERS), most of which were not known at the time of the election, we still believe that rates should come down next year.

Specifically, there are three major issues which have materialized over the past couple of years.  They could have major impacts on the funding levels of the system.

First was the decision of the SFERS Board to lower the investment return projections from 7.75% to 7.5%. While a quarter-percent reduction may not seem like a major issue, with such a large pool of money, even the slightest change can have major impacts. While the stock market has performed fairly well over the past couple of years, there are concerns that a cooling market could have further impacts on the funding status of the fund.

Secondly, a group of retirees sued the City over a change to the supplemental Cost of Living Adjustment (COLA) that linked the COLA to the overall funding status of the system.   While this was an issue during the creation and passage of Prop C, we believe that such payments should only be made when the market is performing well and the fund is healthy. The courts disagreed, stating that a well performing market was all that was needed to fulfill the promise of the supplemental COLA at the time – regardless of the plan’s funding status.

Lastly, a new demographic study has been completed, which shows that retirees are living longer. While this is certainly good news for our members and retirees, it does impact the pension fund in that the actuarial assumptions for the lifetime payout per employee are extended, thus requiring more funds to cover the ‘average’ retiree. Recently, however, the SFERS Board came up with slightly lower numbers when looking at just public employees.

These three issues, when combined, could have significant impacts on the fund. We believe that there needs to be a thorough examination of each issue and a robust discussion of policy and fiscal options to address each issue. We have been engaged in conversations with the Retirement System and the City Hall. Most recently, Commissioner Brian Stansbury met with the Chapter Presidents’ Advisory Council’s Retirement Committee at the L21 office to discuss how SFERS is pushing for creative solutions that limit impacts on employees.

But ultimately, despite these issues, we believe the employee contribution rates should come down by next year, and we are willing to work with the City to ensure that this is happening.