Council considers worker-funded retiree supplement plan

Council considers worker-funded retiree supplement plan

Michele Ellson

The City Council will consider approving a plan Tuesday that would establish a trust to supplement newer firefighters’ pension and retiree medical costs.

Workers would fund the supplemental retirement and health plan by paying 3 percent of their salaries into a tax-exempt trust to supplement their existing retiree medical and pension benefits. The new trust will be open to fire department employees hired after June 7, 2011.

Approval of the plan would mark a shift in the way the city handles its employee pension and retiree health benefits while helping to restore benefits newer firefighters lost in a pair of recent contract deals – albeit at the workers’ own cost.

Almost all of California’s public agencies provide their workers with defined pension and retiree health benefits, with workers and agencies splitting the cost; the trust would be funded solely by workers, whose benefits would be based on the returns it earns, similar to the 401(k) plans prevalent in the private sector.

“It’s definitely moving us a step in the right direction,” said Assistant City Manager Liz Warmerdam, who credited the firefighters union with pushing to set up the worker-funded trust.

The city agreed to establish the trust as part of a December 11, 2012 contract deal with the firefighters union. An earlier contract eliminated retiree medical benefits for spouses of union members hired after June 7, 2011.

The 2012 contract deal also incorporated pension reforms approved by state lawmakers that raised the retirement age and reduced benefits for public workers hired after January 1, 2013.

Three-quarters of the money paid out from the plan will go toward participants’ pensions, while a quarter will pay retiree medical costs. If approved by the council as recommended, the plan will be overseen by the city’s administrative services and finance directors and the union’s president and operated by a private firm, Peery & Associates.

Payments into the plan would begin on July 1. Technically, the city would “pick up” the contributions so that the Internal Revenue Service will allow them to be invested tax-free. But the money will come from workers’ salaries, resulting in no additional cost to the city, according to a staff report to the council for Tuesday’s meeting.

The trust proposal marks the latest in a series of reforms the city has undertaken in an effort to rein in its growing pension and retiree health costs. The city has reduced benefits for newer workers and increased the amount of money existing employees pay for their retirement benefits, and the council recently okayed the creation of a separate trust fund that would serve as a savings account for future retiree health costs.

The city paid $13.6 million toward its workers’ pensions in 2013 and around $3 million toward retiree health, and costs are forecast to rise. Alameda’s unfunded pension debt and retiree health costs over the next 30 years are estimated at $193 million.

Comments

Submitted by JuelleAnn Boyer (not verified) on Tue, May 20, 2014

Has there been any report on forecasted impacts of ACA on retiree medical?