San Diego Faces Record Pension Payment, Budget Concerns Rise

San Diego’s pension board unanimously approved a record $563.2 million annual payment towards the city’s pension obligations, due in July 2026. This payment, $30 million higher than the $533.2 million paid in July 2025 and $23 million more than initially expected, comes amid rising employee salaries and ongoing discussions about long-term financial assumptions.

Rising Costs and Contributing Factors

The increased pension payment is largely attributed to recent employee pay raises, with the average city employee salary now reaching $113,800 . Actuary Gene Kalwarski has noted that salary increases exceeding initial projections have been a recurring issue over the past seven years . These raises have added to the system’s long-term liabilities.

Potential Adjustments to Long-Term Assumptions

The San Diego City Employees Retirement System (SDCERS) board is considering revisions to key assumptions that influence the annual pension payment. These include:

• Employee Lifespan: How long employees with city pensions are expected to live.
• Investment Growth: The projected rate of growth for the pension system’s investments.
• Salary Raises: Whether expectations for future city employee pay raises need to be adjusted upward.

Kalwarski will propose changes to these long-term assumptions in September 2026, following a thorough study of salary trends and investment returns .

Impact of Market Fluctuations

Projections indicate that a downturn in the stock market could significantly increase the annual pension payment for several years. For example, a 3.5% investment loss in the next fiscal year could raise the payment to $598 million in fiscal 2028, compared to the projected $573 million .

Discount Rate Debate

The board also discussed the current discount rate of 6.5%, with some members questioning whether it is appropriately conservative. Board member Chris Brewster suggested that a modest increase to 6.75% or 7% could lower the city’s annual payment by tens of millions of dollars . Yet, Kalwarski emphasized that future expectations are more critical than historical returns when setting the discount rate.

Budgetary Implications

The increased pension payment will reduce the funds available for essential city services, including firefighting, law enforcement, libraries, parks, and infrastructure . Despite the increased payment, the city’s unfunded pension debt has slightly decreased, from $3.49 billion to $3.46 billion .