By Jim Christie

SAN FRANCISCO (Reuters) - San Jose, California's city council has approved a measure for next June's ballot that would overhaul pensions for city workers to rein in their rising costs, a growing concern for local and state governments across the nation.

San Jose's city council voted 6-5 on Tuesday to put the measure to voters as Mayor Chuck Reed has urged. The council, however, also told city staff to press on with talks with employee groups with the goal of arriving at a deal on changing pension benefits before the June primary election.

If that fails, Reed wants voters in California's third-largest city, and the biggest city in high-tech Silicon Valley, to scale back city workers' pension benefits, which he says risk escalating in cost in coming years.

Unless reined in, pension costs will consume an increasing share of San Jose's budget, forcing deeper cuts to public services, according to Reed, who says the city already is "at the edge of 'service-level insolvency.'"

"Service-level insolvency is when you have plenty of money to pay your bills but not provide services," Reed told Reuters. "We're trying to avoid it getting worse and restore the services we've already lost."

San Jose's measure would place new city employees into a "hybrid" retirement plan combining a traditional pension with 401(k)-like accounts or Social Security.

The measure would also give current employees the option of keeping current retirement plans by paying a larger share of their cost or selecting a lower-cost plan.

Additionally, the measure would allow the city council to suspend cost-of-living increases for retirees in fiscal emergencies and require voters approve raising retirement benefits.

VOTERS BACK CHANGE

Reed's concern about pension costs is shared by mayors of other California cities as well as several state leaders. Governor Jerry Brown, for instance, is pressing fellow Democrats who control the legislature to take up his plan to overhaul public employee pensions to shave their costs.

Meanwhile, Republicans aim to put a measure to overhaul public pensions on the November 2012 ballot, an effort seizing on concern among voters about how much is being spent to support government workers in retirement.

Survey results released on Wednesday by The Field Poll show a plurality of voters in the most populous U.S. state believe pension benefits for government workers are too generous.

The polling firm also found 51 percent of voters agree that Brown's plan strikes the right balance on public pensions while 64 percent say pension reforms should apply to both current and new government workers.

"It's very clear that awareness of public pensions has really gone up - as has the feeling that something needs to be done to cap them," said Tony Quinn, coeditor of The California Target Book, which tracks state political races.

"Money going to pensions is too generous and not going to things that the public would rather it go to," he said, adding there is frustration that "pensions in the private sector are now not as generous as pensions in the public sector."

POTENTIAL REFORMS

Like San Jose's measure, Brown's plan proposes hybrid pensions. It would also have public employees in California pay half their cost of pensions and raise retirement ages for most new employees to 67 from 55.

Republicans are mulling two measures for the statewide November 2012 ballot with the intent of advancing the more promising one. Their measures are similar to Brown's plan in some regards but would require government workers to fund unfunded liabilities of their pension plans.

In San Diego, some officials, including Mayor Jerry Sanders, want more dramatic change to tackle pension costs and are pushing a ballot measure to stop giving new city employees, with the exception of police officers, traditional pensions. They would instead be given 401(k) plans.

The city council of California's second-largest city voted on Monday to advance the measure to the June ballot a month after its supporters gathered enough signatures to qualify it.

"There is a desire in San Diego to fix the problem once and for all," said measure proponent City Councilman Kevin Faulconer. "Every dollar that we're not putting into the pension system is a dollar we can put into city services."

(Reporting by Jim Christie; Editing by James Dalgleish)