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On Thursday, the city announced that savings is a result of the new retiree health care package, which offers three options for city workers.

City officials expected about 3,000 of the eligible employees -- those hired before 2005 -- to opt for the plan that is similar to a 401(k) and is cheaper for the city in the long run. Instead, about 5,000 did, said San Diego Mayor Jerry Sanders.

Sanders said there will be no impact on the budget for the next fiscal year -- which begins July 1 -- because people have to be switched into the new plans.

The unfunded liability in retiree health will be reduced from $1.13 billion to $568 million, according to city estimates.

Last May, the city reached an agreement with city retirees. Employees agreed to select health plans that would require them to pay more and the city to contribute less. At the time, it was projected the city would save $714 million. Now that city employees have selected their new retiree health care plans, the total savings has risen to $802 million over 25 years.

"These are savings of what we would have had to have paid, versus what we will be paying," said city of San Diego Chief Operating Officer Jay Goldstone.

According to Goldstone, the 401(k)-style plan became popular because it covers family members and offers things like dental coverage, which the other two options don't do.

The city will pay between $95,000 and $100,000 into the 401(k)-type plan for each of the 5,000 or so workers who chose it when they reach a certain age with enough employment time, according to Goldstone. For most city employees, that's age 55 with 20 years of service, while public safety workers are eligible at 50 years old and 20 years of service, he said.

Goldstone said the advantage to the city is that it's the only payment for retiree health that it will have to make.

A taxpayer watchdog group that's sometimes critical of the city welcomed Thursday's announcement as good news.

"The [retirement] plan itself was a good idea," said San Diego Tax Fighters Chairman Richard Rider. "This makes it an even better idea."

The city believes it could be 10 to 15 years before it can spend the money.

"We don't get [the money] real quickly," said Sanders. "These are projected savings out into the future."

Sanders won't be in office then and he can only predict how those dollars are spent.

"I think what's going to happen, you'll see a slow rebuilding of city services," said Sanders. "You'll see police officers added. You'll see park and [recreation] hours expanded."

With a billion-dollar city budget, Rider believes more needs to be done to keep the city solvent.

"I wouldn't call it a drop in the bucket," said Rider. "It's a cup in the bucket."