What the Measure Would Do

San Francisco’s City Charter currently states that supplemental cost-of-living adjustments can only be paid to San Francisco Employee Retirement System (SFERS) members who retired before November 6, 1996, if the SFERS is fully funded. This measure would amend the charter to eliminate the full-funding requirement for these retirees and their qualified survivors and beneficiaries, ensuring that they would receive this supplemental benefit in future years. In years when the system is not fully funded (when the value of its assets does not exceed the system’s liabilities), the supplemental cost-of-living adjustment would be capped at $200 a month for retirees with monthly retirement payments of $4,167 or more.

Those who retired before November 6, 1996, did not receive supplemental cost-of-living adjustments in 2013, 2014, 2017, 2018 and 2019 because the SFERS was not fully funded. This measure would adjust base retirement payments for this group to account for the supplemental cost-of-living adjustments that they did not receive in those years. Proposition A is expected to cost the City of San Francisco $8 million annually for 10 years, with $5 million of these annual payments coming from the city’s General Fund.

This measure would also amend the charter to enable the SFERS to hire an executive director via an individual employment contract. Currently, the hiring process for this position must follow city hiring rules, which limits the salary and benefits that can be offered to the executive director. This provision would free the SFERS from San Francisco’s hiring restrictions and is intended to allow the SFERS to pursue a more competitive search for an executive director.

The Backstory

San Francisco City and County employees are eligible to receive pension benefits upon retirement; the amount of these benefits varies according to the age at which the employee retires, the number of years served and the employee’s maximum annual compensation. Retirees also receive an annual cost-of-living adjustment of no more than 2%. In November 1996, voters adopted a supplemental cost-of-living adjustment for city retirees. In years when the retirement system’s investment earnings exceeded expected returns, retirees were entitled to a supplemental adjustment up to an additional 1.5%.

However, in November 2011, voters added a full-funding requirement to this supplemental benefit; in order for the supplemental benefit to be paid to retirees, the SFERS had to be fully funded based on the market value of assets for the previous year. This measure was passed in the wake of the 2008 recession, which reduced the value of the retirement fund. This requirement was challenged in 2015 in Protect Our Benefits v. City and County of San Francisco. In this case, Protect Our Benefits, a nonprofit organization dedicated to protecting San Francisco retiree benefits, argued that the full-funding requirement was an unconstitutional impairment of a vested contractual pension right because it limited the established supplemental cost-of-living adjustment. The final court decision ruled that the full-funding requirement could not be applied to current employees but could be applied to employees who retired before November 6, 1996, as it was not a condition of employment before that date.^[1] Since this court decision, the SFERS has had to be fully funded in order for employees who retired before November 6, 1996, to receive a supplemental cost-of-living adjustment.

In July 2016, the SFERS Retirement Board voted to give the supplemental adjustment to the group of pre-1996 retirees. However, the City of San Francisco opposed this action and took the decision to court, arguing that the Retirement Board had no authority to pay benefits that were not authorized in the charter. The court ruled that the Retirement Board did not have the authority to take this action and that “the power to take remedial legislative action is reserved by the City’s voters.”^[2]

This measure was unanimously placed on the ballot by the Board of Supervisors and represents a consensus following long-term negotiations with retiree advocates and labor unions. As a charter amendment, it requires a simple majority (50% plus one vote) to pass.

Equity Impacts

This measure would make the city’s eldest group of retirees eligible for a supplemental cost-of-living adjustment, even if the SFERS is not fully funded and would account for the five years of supplemental adjustments that this group did not receive previously. The average age of SFERS members who retired before November 6, 1996, is more than 80 years. Approximately 4,500 retirees are currently affected by the full-funding requirement, many of whom dedicated over 30 years of service to the city. When the full-funding requirement was applied, it was the only time in San Francisco’s history that an active pension benefit was taken away.

Pros

• Prop. A would restore pension benefits to those who retired from the city before November 6, 1996.
• This measure represents collaboration and compromise among key stakeholders: the city, retiree advocates and labor groups.
• Prop. A would allow the SFERS to pursue a competitive search for an effective executive director, expanding the pool of desirable candidates.

Cons

• This measure would increase the city budget’s pension commitments.