City Council to hold public forum on pension, benefit costs

City Council to hold public forum on pension, benefit costs

Michele Ellson

The City Council is holding a special meeting Tuesday to talk about how they’ll address the city’s pension and retiree health liability. They’ll also be soliciting public input on how the city should proceed in its upcoming contract negotiations with police and firefighters.

The meeting gets underway at 7 p.m. in Council Chambers at City Hall, and will be broadcast on cable channel 15. An agenda and meeting materials are here, and city staffers have posted additional background on the budget and labor negotiations here.

City leaders are continuing to look for ways to address unfunded, long-term pension liabilities estimated at $107 million as of June 30 – $79 million of it for public safety pensions and $28 million for those to be paid to the city’s non-safety employees – and an unfunded retiree medical liability of $86 million as of January 1, 2011, a staff report for Tuesday’s meeting says.

The city and its employees contribute toward pensions based on rates set by CalPERS and state lawmakers and at the bargaining table; the city pays its retiree medical costs – which have risen about 11 percent a year over the last decade –as they come due, and the $2.5 million a year the city pays now is expected to grow to $7 million over the next 15 years.

Last year, City Manager John Russo set up a 14-member task force that included City Treasurer Kevin Kennedy, City Auditor Kevin Kearney, the city’s police and fire chiefs and its human resources director, representatives from the city’s police and firefighter unions and members of the community to look at ways to address the city’s pension and retiree health benefit costs. Members agreed pension costs are a problem but disagreed about the scope of it, with some saying it’s temporary and others believing it poses a longer-term, structural challenge to the city’s finances.

A task force subcommittee that looked at the city’s obligations, which span a 30-year period, determined that its unfunded pension liability could be higher than expected because CalPERS, the retirement plan that serves most of California’s public employees, chose to spread out the amount cities must pay to cover the plan’s losses in order to avoid hitting cities with big pension increases they might not be able to pay. The subcommittee also noted that CalPERS’ average returns over the last decade have been lower than the rate they use to calculate those payments.

The task force considered a list of options for addressing the city’s liabilities that included selling Alameda Point and other city assets, using future windfalls to pay down what the city will owe, asking employees to pay more and reducing benefits. Its members unanimously agreed that the city should ask safety workers to pay more toward their pensions and that pension checks should be based on employees’ top three years’ worth of pay, instead of their top year, while 10 of 13 members who voted recommended the city negotiate with non-safety employees to pay more toward their pensions and with all employees to create a second tier of benefits for newcomers, who would wait longer to get their full pensions and receive fewer benefits.

The task force members split on how to address the city’s retiree medical benefit costs, which the city has more leeway to address than it does with pensions. Eleven of the 13 members surveyed on potential solutions to address those costs said the city should consider further modifying eligibility and vesting for the benefit, setting up an employee savings plan for retiree health benefits, offering cash payouts in lieu of future benefits and bargaining with employee unions to reduce the liability, possibly by reducing benefits.

City staffers couldn’t say at this point how much money any of the changes would save if they were made; Assistant City Manager Lisa Goldman said they’ll do more work on potential pension and benefit changes after hearing from the council and the public.

State lawmakers recently approved a pension reform plan that could put many of the proposed changes into place. The plan, which goes into effect on January 1, would raise the retirement age and reduce benefits for new employees and cap the amount of salary that can be used to calculate their pensions, and would also split pension costs between new and existing employees and their employers 50-50. Retirement payouts for new employees will also be based on their three highest years of pay, instead of a single year.

What’s not clear to city staffers managing the changes is which provisions are mandated – and therefore not subject to discussion at the bargaining table – and which are simply permitted. Goldman said new retirement benefit formulas for city employees hired after January 1 are set in stone, while other changes – like the amount employees must pay toward their pensions – may be subject to negotiation.

In addition to discussing the city’s pension and benefit liabilities, the council will be accepting public input that it will use to guide the city’s upcoming bargaining sessions with its police and fire unions, whose contracts expire next June. Negotiations are set to begin in November.

City leaders have been talking about ways to address Alameda’s unfunded pension and retiree health costs in earnest since 2008, and they have worked with their employee unions to take some steps toward addressing those costs.

Over the last few years all of the city’s employees have agreed to pay more for their retirement benefits, and its public safety unions have agreed to jettison retiree health benefits for new hires' spouses and to make them wait longer to be fully vested in their benefit plan.

The city had more retirees than active employees in 2010, the last year for which data was provided in a valuation provided to the task force, and over the course of a decade the amount of money the city paid out to each retiree had climbed. In 2001, the city was paying 130 safety retirees an average pension of $46,300, while in 2010, 208 retired public safety workers were getting an average pension of $82,700 a year. In 2001, the city paid some 328 retired non-safety employees an average of $12,300 a year, while in 2010, they paid 439 non-safety retirees an average pension of $17,600.

The city’s safety employees can retire as early as 50 with 3 percent of their top salary for each year they work, while non-safety employees get 2 percent of their salaries at 55. But those retirement formulas will change for employees hired after January 1 under the state’s new reform plan.

This past year, the city paid 37 percent of Alameda’s police and firefighters’ salaries toward their pensions; the city’s public safety workers agreed to contribute 11 percent of their pay toward that cost, up from the previous 9 percent. The city contributed 15 percent of its other workers’ salaries toward their retirement last year, and those workers recently agreed to contribute more than half of that amount - 8.868 percent of their pay - toward their retirement.


Jon Spangler's picture
Submitted by Jon Spangler on Thu, Oct 25, 2012

This is a tough issue to resolve, especially with so many unknowns and changing financial projections. I hope we can abandon partisan and preconceived notions in favor of finding solutions that will work, even if we do not all like the selected options as our first choices.

IT took decades to create this public policy conundrum and there is no way we can fix it overnight.