Supervisor Farrell introduces charter amendment to pre-fund $4.4 billion retiree health liability

Supervisor Farrell introduced a charter amendment on May 7 aiming to change how San Francisco pays for retiree health benefits, which he said currently represent an unfunded liability of about $4.4 billion.

Farrell told the Board that the city now pays retiree health benefits on a pay-as-you-go basis and that less than 1 percent of the $4.4 billion liability has been prefunded. He said the city currently contributes roughly $150 million per year from the general fund toward retiree healthcare and that, without change, that number could rise to more than $500 million annually within 20 years.

"This charter amendment will effectively switch from a pay as you go model to a fully funded model to pay for our retiree health care costs," Farrell said, describing three goals: move to a prefunded trust, cap employee contributions at 10 percent of payroll, and protect the governance structure (controller, treasurer and elected members of the health care service board) overseeing the trust. He said the change would eliminate the $4.4 billion liability in roughly 30 years and produce investment income to reduce future taxpayer costs.

Farrell cited prior ballot measures and reform efforts, saying those earlier measures increased employee contributions but left the trust vulnerable to being drawn down through 2020. He said the measure had gained support among multiple labor and business groups and that he had the mayor's endorsement.

The item was introduced to the board for future consideration and referral; no final vote occurred on May 7.