San Diego is one step closer to ending the long and costly legal battle over 2012’s Proposition B, a voter-approved attempt to eliminate pensions for most new workers that was ultimately overturned by state courts. The city has agreed to spend $2.2 million creating pensions for 204 workers who were hired after Proposition B took effect in July 2012 but were no longer working for the city when pensions were restored in July 2021. That agreement leaves only one group of workers still mired in Proposition B controversy: roughly 1,000 police officers who have been denied pension credit for six months they spent in the police academy. The city’s cost to solve that dispute, which is the subject of an ongoing lawsuit, would be about $11 million, according to the San Diego Police Officers Association, a labor union that represents city officers. Courts overturned Proposition B because city officials had placed the measure on the ballot without negotiating the details of it with affected city labor unions, as required under state law. The price tags for these last two groups of workers are far lower than the $193.3 million bill the city got nearly two years ago to create pensions for the bulk of workers affected by Proposition B. That group included more than 3,000 workers hired after Proposition B took effect in July 2012 and who were still working for the city when pensions were restored in July 2021. They are called Phase 2 workers. It also included 705 workers hired after the city agreed to restore pensions but before officials had worked out exactly how that would happen and what it would cost. They are called Phase 1 workers. The 204 workers granted pensions in the most recent wave are called Phase 3 workers. Action on them is coming later because they had already left city service, making it a challenge to locate them and ask whether they want retroactive pensions. “This puts kind of a bow on Phase 1, 2 and 3,” Greg Rademacher, chief executive of the city’s pension system, said last month when the pension system board approved the new pensions in an 11-0 vote. The city must pay $400,000 of the costs for the retroactive pensions in cash. The other $1.8 million will be added to the city’s $3.4 billion pension debt, which the city pays off slowly and steadily with annual payments. Similarly, the city paid $74.3 million in cash for the Phases 1 and 2 workers. The other $119 million was added to the pension debt. The city’s costs for phase three could have been much higher. Only 204 of the roughly 2,000 eligible workers decided they preferred a retroactive defined-benefit pension instead of the 401(k)-style defined-contribution retirement account they had already gotten from the city. That’s not surprising, because the group is made up of workers hired when Proposition B was in effect but who left the city before pensions were restored. They may be less likely to work enough total years for California government agencies ultimately to be eligible for a pension when they retire. But if they left the city for a job with a different government agency instead of a job in the private sector, they were more likely to prefer a pension over the 401(k)-style retirement accounts they got from the city. Under court rulings, employees who opt for retroactive pensions must surrender the 401(k)-style retirement accounts to the city, which then sells the accounts and uses the proceeds to partly cover the costs of retroactive pensions. Rademacher said 29 of those 204 workers had since been re-hired by the city, making the decision on retroactive pensions potentially easier for them. The court rulings also require the city to pay penalties to workers who opt for retroactive pensions. The city must pay each employee a penalty of 7% of the difference between the value of the 401(k)-style plans and the value of a pension. For that reason, the performance of the stock market affects how much it costs the city to create retroactive pensions for workers affected by Proposition B. When the police officers union filed suit over the academy dispute two years ago, the estimated price tag for its members was $11 million, union president Jared Wilson said. Because markets have performed well since then, the price tag could be lower, said Wilson. But there are also factors that make the price tag grow with time. The dispute stems from a last-minute decision by the authors of Proposition B to exempt police officers from the measure. That deal meant newly hired police officers would be the only new San Diego employees still eligible for pensions. But when that change was written into the Proposition B language, it applied only to “sworn” officers, which doesn’t include police recruits who serve six months in the police academy before becoming full-fledged “sworn” officers. In its lawsuit, the police union argues that these officers should get pension credit for those six months, which could boost the pensions they receive when they retire. In addition, those roughly 1,000 officers — most of the city officers hired since 2012 — have also been forced to pay more toward their pension than they should, the union says. Because they officially joined the pension system six months after the union says they should have, those officers pay roughly $50 more per paycheck than they would be paying. The city’s position is essentially that it has no obligation to extend to those officers the same compensation it is required to extend to other workers affected by Proposition B. That’s because the police officers union didn’t join the lawsuit against Proposition B that was jointly filed by four other city labor unions, primarily because police officers were exempted from the measure. “They basically forced us to sue,” Wilson said. “We are confident we will win — everyone else won.”