CC 2012-11-13_08.b. Modification to CALPERS ContractTO:
FROM:
MEMORANDUM
CITY COUNCIL ~ }/ ~
ANGELA KRAETSCH, DIRECTOR OF ADMINISTRATIVE SERVICEsf\r-
SUBJECT: CONSIDERATION OF MODIFICATION TO CALIFORNIA PUBLIC
EMPLOYEES' RETIREMENT SYSTEM (CALPERS) CONTRACT FOR
THE LOCAL MISCELLANEOUS MEMBERS
DATE: NOVEMBER 13, 2012
RECOMMENDATION:
It is recommended the City Council approve and authorize the Mayor to sign on behalf of
the City a Resolution of Intention to amend the contract with the California Public
Employees' Retirement System for local Miscellaneous members
IMPACT ON FINANCIAL AND PERSONNEL RESOURCES:
The employer contribution rate for the second tier will be 9.716% of reportable earnings
for local Miscellaneous members entering membership from another CaiPERs agency
into the Miscellaneous classification after the effective date of this amendment to
contract. The employer contribution rate for current Miscellaneous members is
22.086%. Amount of savings will depend on the number of positions that the new rate
applies to in the future. No immediate savings is anticipated.
BACKGROUND:
The City contracts with the California Public Employees' Retirement System (CaiPERS) to
provide retirement benefits to employees. The retiree benefits are based on the number of
years of service, the employee earnings, and the benefit provisions of the contract.
During negotiations with the Service Employees International Union (SEIU) and the Arroyo
Grande Police Officers' Association (AGPOA), an agreement was reached in which a two
tiered CaiPERS plan would be implemented. The City provides the 2.5% at 55, single
highest year, retirement plan for local Miscellaneous members and will continue to provide
this plan for current employees. The second tier will provide new lateral Miscellaneous
employees with the 2% at 55, three-year final compensation, CaiPERS plan. With the
recent implementation of AB 340, beginning January 1, 2013 a third tier will be created in
which new members to the CaiPERS system will be at 2% at 62 using a three-year final
compensation average and have a wage cap based on the Social Security wage index
limit. In addition, new members will be required to pay at least 50% of the normal cost and
employers are prohibited from paying this contribution on the employee's behalf.
Item 8.b. - Page 1
CITY COUNCIL
MODIFICATION TO CALPERS CONTRACT
NOVEMBER 13, 2012
PAGE2
ANALYSIS OF ISSUES:
This action implements provision 16.1A of the current MOU between the SEIU and the
City of Arroyo Grande and Article 26 of the current MOU with the AGPOA. The provisions
state that the CaiPERS 2% at 55 Retirement Plan shall be provided for new Miscellaneous
employees. New employees shall pay the full 7% of the employee share of CaiPERS.
Also, for new employees, retirement benefits will be based on the highest average annual
compensation earnable by a member during three consecutive years of employment.
On August 31, 2012, the State legislature adopted AB 340, the Public Employee Pension
Reform Act of 2013. As part of this act a new retirement benefrt formula of 2% at age 62
for all new Miscellaneous employees hired after January 1, 2013 was created. This new
formula only applies to employees that are "new" members into the CaiPERS system and
not employees hired from another CaiPERS agency. Therefore, by moving forward with
the implementation of the second tier, only employees who are hired after December 20,
2012 who are already members of CaiPERs would now be hired in at the 2% at 55 plan.
As a result, a three tier system will now be created. Existing employees will be under the
2.5% at 55 plan, new employees hired from another CaiPERS agency will be under the
2% at 55 plan, and all other new employees will be under the 2% at 62 plan.
Implementation of the second tier was delayed due to Police consolidation efforts. AB 340
prohibits implementation of other tiers after December 31, 2012. Therefore, the City must
move forward immediately or forego a second tier for new employees hired from another
CaiPERS agency.
Normally, the first step in the CaiPERS contract modification process is to introduce for
first reading an ordinance to modify the contract and adoption of a Resolution of Intention
to amend the current contract. However, due to the passing of AB 340, staff will need to
present an Urgency Ordinance to the Council on December 11, 2012. In compliance with
State law, the adoption of the Urgency Ordinance must be at least 20 days after Council
adopts the Resolution of Intention. If adopted, the Urgency Ordinance will go into effect
immediately, so the Amendment to Contract with CaiPERS would commence on
December 20, 2012, which is the first day of the next payroll period.
Staff was notified by CaiPERs that the required Resolution of Intention will not be available
until after the Council agenda has been published. Staff will submit the Resolution of
Intention as a supplemental item as soon as it is received.
Item 8.b. - Page 2
CITY COUNCIL
MODIFICATION TO CALPERS CONTRACT
NOVEMBER 13, 2012
PAGE3
ALTERNATIVES:
The following alternatives are provided for City Council consideration:
Approve staff recommendations by adopting the Resolution of Intention to
amend the PERS contract;
Since AB 340 already establishes a second tier for new employees that are
not hired from another CaiPERS agency, the City Council may want to forego
implementation of this tier. If it does, staff recommends the City Council still
approve the Resolution of Intention and then direct staff to meet with
representatives of the SEIU and AGPOA in order to pursue a side letter of
agreement to the MOUs to delete the provisions regarding the second tier. It
is likely the unions will be cooperative since the second tier was originally
considered a concession. The City Council could then make the decision to
forego the second tier when the Ordinance is scheduled for consideration;
Provide direction to staff.
ADVANTAGES:
By approving the recommended amendment, the City will be honoring the agreement
reached with the respective unions. The two tiered plan will provide the City with cost
savings in future years and will provide benefits consistent with the majority of other
cities in the County.
DISADVANTAGES:
The additional tier will provide the following disadvantages:
• It will result in a complex three-tier system for miscellaneous employees;
• It will increase the challenge of recruiting qualified management and executive
employees since the City's salaries are already lower than many agencies and
will now require new experienced employees to accept a potential decrease in
their retirement benefits;
• It will make the potential for future consolidated Police and/or dispatch services
more difficult because transferring non-sworn employees from one agency to
another would likely negatively impact their retirement benefits.
ENVIRONMENTAL REVIEW:
No environmental review is required for this item.
PUBLIC NOTIFICATION AND COMMENTS:
The Agenda was posted in front of City Hall on Thursday, November 8, 2012. The
Agenda and report were posted on the City's website on Friday, November 9, 2012. No
public comments were received.
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