SAN JOSE (CBS/AP) — The city of San Jose and its police union have reached an agreement that will reduce pensions for new officers and ends a dispute over efforts to reduce costly retirement benefits.

The settlement with the San Jose Police Officers’ Association was struck late Thursday. An arbitration hearing was planned for Friday to settle the dispute and the two sides still plan to meet to formalize the deal.

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The city has been wrangling with its employee unions over retirement benefits whose costs have more than tripled in a decade.

Voters approved a series of ballot measures aimed at checking those costs. Unions are seeking to overturn the most recent measure which limits new-hire pensions.

Recruits now going through the academy will be the first to be covered under the new deal and will have to work another 10 years in order to reach the retirement age.

The deal will reduce their pension by 25 percent.

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“It’s a terrible day for San Jose PD. We literally today have closed the door on a recovery at least in the next four or five years. We’re going to really see a huge exodus that will pick up steam in 2015,” said San Jose POA Board of Directors President Jim Unland.

Mayor Chuck Reed called the settlement a big win for taxpayers.

“It’s a win for employees because now they know exactly what they’ve got. They’ve got a benefit that will still be sustainable. It’s still a very fine retirement benefit. A police officer can retire on 65 percent of the final three-year salary. This is substantially better than anybody will get in the private sector under Social Security.

The police union, which has filed suit over pension reform Measure B,  hopes that it will be overturned by the courts.

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