What it does
This Charter amendment would allow the Board of Supervisors to establish one or more plans to defer taxation of accumulated vacation, sick leave, and other compensation, payable when an employee retires from the City, without cost to the City.
Why it is on the ballot
Currently, when a City employee retires, they are paid a "lump sum" for their accumulated vacation, sick leave, and other compensation, which is taxable by the Federal and State governments. The City also must pay the appropriate payroll taxes on this payment.
Those who support this measure state:
- This measure will increase retirement benefits for City employees without increasing costs to the City.
Those who oppose this measure state:
- If this benefit ever goes away, whether it be because of changes to Federal tax law or because the retirement fund's investments don't do well, we can expect that the City employee unions will come before the voters asking for increases to retirement benefits to make up for the losses "as a matter of fairness." Once a benefit like this is established, it tends to be viewed as something that employees feel they have a right to.
This measure would empower the Board of Supervisors to enact, by a 3/4 vote, ordinances that enable employees leaving City service to transfer lump-sum payments into deferred-compensation plans. The benefit of this for employees is that they wouldn't have to pay State or Federal taxes on these lump-sum payments until they withdraw the money, after retirement. The Employees' Retirement System, in compliance with Federal and state tax laws, would be administered through an independent contractor.
The Charter amendment would have no cost for the Employees' Retirement System; the gain for the City employees would come at the expense of State and Federal taxes, not local taxes. The entire cost to administer the plan(s) would be borne by the employees who would voluntarily elect to participate, or the independent contractor operating the plan(s). The City would save a very small amount-according to the Controller, around $250,000 annually, because it would not have to pay social security and Medicare taxes on the amounts transferred into the plans. This measure really is as simple as it looks.
SPUR recommends a "Yes" vote on Proposition A.