Every citizen of Cupertino should read this article so they get a general idea of the retirement plan being agreed to by our City.
The article does not explain what a 2% at 60 retirement plan is, or the current 2.7% at 55 plan, or what assumptions have been made in drafting the plan. The article appears in this week's Courier, by Matt Wilson; Click Here to read article
I have not seen that old plan; but, my guess is as follows hypothetically. A City employee who has been employed for say 30 years at age 55 and earning $100,000 their final year of employment receives 2.7% x 30 x $100,000 = $81,000 a year retirement. My guess is also that this retirement amount is adjusted in some fashion for inflation going forward post retirement. This is the old plan, IMHO, and I could be totally out to lunch here.
I am guessing that the new plan works somewhat like this, the article indicates an average of their last 3 years of employment compensation. Assuming the same hypothetical for new hires now the formula might be 2% x 30 x $100000 = $60,000 a year retirement. Of course anyone hired today and retires in 30 years from now will be earning much more than $100,000 annually adjusted for inflation.
Plans like this are based on assumptions of longevity, inflation and economic growth.
If I have gotten this wrong; would someone please set me straight. I am not passing judgement; but, the article does not give much in the way of how this retirement plan works and how it fits into the concept of sustainability.
In the private sector agreements generally have what is known as a "Claw-back" clauses. This allows a business to go back and adjust for mistakes or bad assumptions, black swan events, or unanticipated changes. Does this retirement plan have a claw-back clause to adjust the plan if the underlying assumptions are incorrect and the plan turns out to be non-sustainable? The article does not address this issue.
I am very appreciative of our City employees and the work they do. However; we have gotten ourselves into quite a pickle with non-sustainable entitlements and our representatives must make sure we do not replicate the same situation going forward.
The question is begged: how is this plan sustainable?