Alameda faces rising pension bills
Alameda faces rising pension bills
New assumptions about how long public workers will live, what they’ll earn and when they’ll retire are expected to mean bigger pension bills for the City of Alameda.
The California Public Employee Retirement System, or CalPERS, board voted in mid-February to adopt the new assumptions and with them, cost increases for the nearly 3,100 public agencies that pay in to the pension system, the nation’s largest. The rate increases for local agencies will be phased in over five years beginning in 2016 – instead of the 15-year track increases are on now – while the state will begin paying higher rates later this year.
By 2021, the city could be paying 58.4 cents in pension costs for every dollar of a police officer or firefighter’s salary, according to a chart provided by Alameda’s finance director, Fred Marsh, up from 36.5 cents per dollar now. In addition to the city’s contribution, safety workers are projected to pay another 15 cents per dollar of salary to help fund their pensions, up from 12 cents now.
The city’s non-safety pension contribution rate could rise to 29 cents per dollar of salary by 2021, the chart shows, up from 22 cents now. Non-safety workers pay 8.9 cents for every dollar of salary toward their pensions on top of that, a rate that’s not projected to change.
Safety pensions cost more because safety workers’ benefits are richer than those of non-safety workers.
Marsh said the city would have more specific information about the amount they’ll owe in October. Projections city staff offered during a budget presentation in May showed the city’s pension contributions rising by $3.2 million by 2019-20 if the city’s share of safety workers’ pension contribution rates rose to 54 percent of their salaries and non-safety workers’ rates rose to 25 percent of their salaries.
The city paid $13.6 million toward pensions in 2013, its annual financial report shows – $2.5 million more than it did five years earlier.
In addition to the new rates, worker raises approved by the City Council in 2012 will likely add to the city’s pension costs.
A CalPERS study that reflected on 14 years worth of retiree data calculated that men who retire at 55 in 2028 will live 2.1 years longer than previously expected and women, 1.6 years longer. It also found that police were retiring in larger numbers than previously assumed and determined that public safety workers will see bigger raises than had been anticipated by earlier studies. The rates were changed to reflect the new assumptions.
The pension plan’s board voted not to change its assumptions regarding its anticipated rate of return on its investments, which is set at 7.5 percent. Returns were 12.5 percent in 2012-13, preliminary results reported in July 2013 showed; the pension fund’s returns since 1988 averaged 8.5 percent, according to a press release.
In a press release announcing the rate increases, CalPERS board members said the changes were needed to stabilize the pension fund.
“These changes establish a clear window into the future costs of pensions,” Priya Mathur, vice president of the CalPERS board, was quoted as saying in the release. “We recognize that the fiscal environment at the local level is still tight but not taking action will only put costs off to a future day at a greater expense.”
The League of California Cities had advocated for a more flexible approach that allowed cities that could afford to do so to pay more of the increases in advance and let others that are strapped for funds to have a few more years to adjust to cost increases.
“We are requesting the additional options because it is difficult and we believe ultimately unwise to fashion a one-size-fits-all approach for all local employers in light of the real disparity in the fiscal capacity of cities to absorb the resulting costs,” the League’s executive director, Christopher McKenzie, wrote in a February 7 letter to CalPERS.
Marsh said the city is talking with the council and Alameda’s employee unions about pension contributions; he said additional worker pension costs would need to be negotiated with the unions. Leaders of three city unions couldn’t be reached for comment Tuesday.
In the same contract agreements that gave workers raises, they also agreed to pay more toward their pensions than the state requires by shouldering a portion of the city’s pension bill in addition to the maximum the city could require them to pay.
City Treasurer Kevin Kennedy, who has long urged the city to address its pension and retiree health liabilities, said CalPERS had long discussed potential changes and that the changes the board approved were ones that needed to be made.
“This is just kind of catching the system up to reality,” Kennedy said.