In San José’s pension wars, the truth has often been a casualty, and former Council member Pete Constant was often the trigger man. What a pleasant surprise to find the City has begun to set the record straight.
During a tense council meeting over the city budget, former Council member Forrest Williams provided a calming voice to reassure the Council that the course before them was difficult, but that balancing the entire budget on the backs of the employees was shortsighted. Williams lead with a reasonable request – the City should always pay its full share of the “normal cost” of the retirement plan.
We as a city need to do some things ourselves to help the situation. I was on the retirement board. When the returns on the investments were greater than the plan, those dollars went back to the city to help reduce their contributions to the retirement plan. I was concerned, I wanted that to remain in the retirement so that… we knew it was going to be cyclic, that is was going to be ups and downs. So… those changes we have to make, we have to make those adjustments ourselves.
A quick aside for a definition: The “normal cost” is the actual funding amount that the city must put into the system to meet the costs of pensions for current and future retirees. In good years, when investments are returning more money than the expected rate of return, the City still should pay the full “normal cost,” so that when the bottom falls out of the market, like it did in 2008, the pension funds have a cushion to deal with declines in investment returns.
Pete Constant, intent on blaming city workers rather than the irresponsible investment practices of the City, denied that San José had taken a partial “pension holiday” by failing to pay the “normal cost.”
We heard comments about the retirement payments and there were a few things that were said that are simply not accurate. Former Council member Williams
mentioned that in the past the city has taken it’s share of the retirement contributions and not put them into the retirement funds but put them in the general fund to defer expenses. That is simply not true.
The City of San Jose has always paid its normal costs for retirement and it has made the required payments on the unfunded liabilities. Although I will grant you that the unfunded liabilities do change year to year so there are some years that those payments were less because the unfunded liability was not where it is right now. And the council, whether it’s our council here or previous councils aren’t the ones who determine those contribution rates.
Those contribution rates are determined by the independent boards that do have employee representation that set those and basically dictate the council what we have to pay. That’s the way the retirement systems are designed and that’s how they operate. So, I just want to make sure everyone understands that comment is not true. We have never taken our contribution rates to offset the deficit nor will we ever in the future. It’s simply not something that has been done and quite frankly it is not even a legal action for the council to take.
Watch the video of the exchange here. Council member Forest Williams speaks at 02:58:40 and Council member Pete Constant speaks at 04:51:00.
Before you can fix a problem, you must acknowledge that you have one. Constant’s adamant denial that the City had taken a “pension holiday” precluded badly needed pension reform… until now. Acknowledging the City’s past “pension holidays,” Mayor Liccardo – who was a Council Member at the time the exchange took place – recently proposed to end the practice.
How ironic that Pete Constant, the supposed champion of pension reform, actually stood in the way of pension reform! An added twist to the story is that Constant is now working for none other than Mayor Liccardo. Guess what his job responsibilities include? That’s right. Pension reform.
Welcome to the alternate universe of San José pension reform – a place where the facts and policy competence matter less than politics.
Dennis Raj is the Political Director for the South Bay Labor Council
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