Future teachers, city workers will see slimmer pensions

Future teachers, city workers will see slimmer pensions

Michele Ellson

Updated at 1:00 p.m. Tuesday, September 25 with additions and corrections in BOLD.

The Alamedan misstated several key facts in today's story about new pension rules. The story claimed the law would require existing city and schools employees to pay half their pension costs; such arrangements could be negotiated between 2013 and 2017 and imposed in 2018 if a deal isn't reached, up to a cap of 12 percent of public safety employees' salaries and 8 percent of other city workers' and teachers' salaries. The article also misstated the age at which the city's non-safety workers may retire with full benefits; it is 62. The Alamedan deeply regrets the errors.

Future police and firefighters, teachers and other city and schools employees will receive fewer benefits and retire later than those working at City Hall and in Alameda’s schools now under new pension rules approved by Governor Jerry Brown.

A detailed analysis conducted by CalSTRS, the retirement system that covers all of the state’s public school teachers, determined the changes would save $22.7 billion over 30 years, or about a third of the $65 billion unfunded liability the plan holds. Preliminary estimates released on August 31 by CalPERS, which covers city and state workers, showed that cities and other local agencies that use it could save up to $32.4 billion over 30 years, though those estimates were preliminary.

Schools officials couldn’t be reached Monday for local estimates of savings that could be produced by the plan, though City Manager John Russo offered a "back of the envelope" estimate that the changes could reduce the city's unfunded pension liability by about a third. The city faces unfunded pension liabilities of $107 million, according to minutes from a March 29 task force meeting. That amount doesn’t include money the city will owe – but doesn’t have – for retiree health benefits.

A city pension task force is set to report on Alameda’s retirement benefit liabilities and possible solutions to address them on October 30. Separately, city officials have been in talks with Alameda’s public safety unions about pension changes and had outlined proposed pension changes for non-safety employees.

Under the plan Brown approved on September 12, police and firefighters hired after January 1, 2013 will have to wait until they’re 57 to retire with a full pension of up to 2.7 percent of their salary for each year served; the city’s current public safety workers can retire at 50 with 3 percent of their salary for each year.

The city’s future non-safety workers won’t qualify for their full pension until age 62, while its current workers will continue to get that benefit at 55. City leaders had planned to negotiate with non-safety workers for a two-tiered plan that would see future workers retiring at 60.

Teachers now qualify for a full pension at age 63, but those hired in 2013 and beyond will have to wait until they are 65 to receive the same pension. Some 80 percent of the state’s teachers retire before that, according to CalSTRS’ analysis, with the class of 2010-2011’s retirees earning a pension that averaged 56 percent of their highest year’s pay.

The pay used to calculate benefits for new city and schools employees will be capped at $136,440, according to one estimate, or 120 percent of the cap used to calculate Social Security payouts. Some 3,400 of CalSTRS’ active members – the system serves 856,000 teachers – would hit the cap, according to the pension plan’s analysis.

Under the newly approved pension rules, benefit increases for future public employees will apply only to the years of service that followed their approval, and overtime and other pay that some government entities had included in pension calculations for current employees will be excluded for future workers.

While city leaders and the state’s pension managers have said they are limited in the changes they can make to current employees’ benefits, the new rules will ultimately allow cities to require their existing employees to pay half of the cost of their pensions, up to a certain percentage of their salaries – which means their costs could change from year to year. It’s a change that could have some impact on police and firefighters, whose retirement benefits cost the city two and a half times what they pay for other city employees on a per-employee basis.

Between 2013 and 2017, cities can negotiate with their unions to require existing employees to pay half of the cities' cost for pensions, up to cap of 8 percent of a non-safety employee's salary and 12 percent of a police or firefighter's salary. City leaders can impose the changes in 2018 if they aren't negotiated earlier.

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, an increase that Jeff DelBono of the International Association of Fire Fighters Local 689 said cost Alameda’s firefighters an average of about $350 per month each.

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.

In 2009, CalPERS paid an average benefit of $66,486 to 204 retired Alameda police and firefighters who started taking the benefit at an average age of 63, actuary reports showed. Some 538 non-safety workers got an average of $16,128 each in 2009, taking the benefit at the average age of nearly 71, the reports showed.

Teachers already pay the 8 percent of salary maximum toward their benefits, or about half what they cost, so existing employees’ costs would be unlikely to change and future employees – who’d get fewer benefits – could pay less as the cost of their smaller benefit drops. (While city workers’ benefits are negotiated jurisdiction by jurisdiction with some parameters set by the state, teachers’ benefits are uniform across California.)

Some local union leaders are frustrated with the changes. DelBono said the firefighters union was working with city leaders on a plan to pay more toward their pensions and also on changes to the pay pensions are based on. But he believes state lawmakers sidestepped the bargaining table by setting his members’ contribution rates at half of their pension plan’s cost, a sentiment echoed by a representative of the city’s non-safety employees.

He said he thinks the new, two-tiered benefits system is “bad for morale” and questioned whether police and firefighters will work until they are 57. (Safety workers can still retire at 50 under the new rules, but they will receive a lower pension benefit.)

“I don’t think you’re going to see cops and firefighter being able to work until they are 57 years old,” DelBono said. “I think you’re asking for problems in the workforce.”

But Russo, who is facing negotiations for new contracts with public safety workers soon, said the new pension rules have put the city in a different bargaining position than they were in before.

"The actions of the Legislature have helped," he said.

Treasurer Kevin Kennedy, who has pushed city leaders to address the city’s unfunded pension and retiree health care costs, said Brown’s plan is an improvement on the previous pension rules but that he doesn’t think it will fully address the unfunded costs. Kennedy, who has said he thinks city leaders should consider cutting salaries to help manage costs, also questioned the impacts of the two-tier system.

“There’s been an argument all along that you pay people and provide good benefits to do a job like policeman – there’s some validity to that,” Kennedy said. “If you structure it where current employees get arguably outsize benefits, and the new guys get a fraction of that – it’ll be difficult to maintain the quality of the work.”

Pension plans, then and now

Here’s a quick breakdown of the existing city and school district pension plans and the new ones that will go into effect for employees hired after January 1, 2013.

Public safety: Current police and firefighters can retire at 50 with 3 percent of their top salaries for each year served. New hires will be able to retire with 2 percent of a salary equal to the average of their three top years at 50, or 2.7 percent at age 57. All safety employees will be required to pay half the cost of their pensions, up to a cap of 12 percent of their salaries; they now pay 11 percent of their salaries, while the city paid 37 percent of each employee’s salary toward their pension in 2011.

Non-safety: Current city employees get 2 percent of their top salary for each year served at age 55. New hires would get that same amount at age 62, based on an average of three years' worth of top salaries; city leaders had sought to raise new non-safety employees’ retirement age to 60. All non-safety employees will be required to pay half the cost of their pensions, up to a cap of 8 percent of their salaries; they agreed in June to pay 8.868 percent of their salaries toward their pensions, while the city in 2011 paid 15 percent.

Teachers: Teachers now employed by AUSD get 2.4 percent of their salaries at age 63, with credit for years served. New hires would get that same benefit at 65, with the credit for time served reduced and pension pay based on teachers' top three years of pay. All of Alameda’s teachers will be required to pay half the cost of their pension, with a cap of 8 percent of their salaries, something they already essentially do: According to CalSTRS, school districts pay 8.25 percent of each teachers’ salary toward their pensions, while teachers contribute 8 percent.


Submitted by Tony Daysog on Tue, Sep 25, 2012

Actually . . . you are more right than you think.

The requirement that workers pay "half their pension costs" (referenced above in the article and in the correction) speaks to the provision in the recently adopted pension reform that states that, unless a settlement is reached by 2018, cities can unilaterally impose a contribution rate of **up to** 14%, i.e. workers would have to contribute 14 cents for every one dollar in pay. As indicated, police/fire in A-town contribute 11% already, and all others roughly 9%.

Where the "half" comes into this scenario refers to the corollary requirement that, if a city come 2018 unilaterally imposes the 14% requirement, the city, too, must contribute up to 14 cents for every dollar in worker pay. Thus, 14 cents on the dollar from the worker, matched by 14 cents on the dollar by the city results in Jerry Brown's "50/50." For another good write-up on this matter, see Daniel Borenstein's article:


Submitted by Michele Ellson on Fri, Sep 28, 2012

Thanks, Tony. Here's some relevant language from the bill; the guidance from CalPERS and CalSTRS, the two public pension systems Alameda's public sector workers are invested in, is attached in downloadable form at the bottom of the story.

20516.5. (a) Equal sharing of normal costs between a contracting
agency or school employer and their employees shall be the standard.
It shall be the standard that employees pay at least 50 percent of
normal costs and that employers not pay any of the required employee
(b) Notwithstanding any other provision of this part, a
contracting agency or a school district may require that members pay
50 percent of the normal cost of benefits. However, that contribution
shall be no more than 8 percent of pay for local miscellaneous or
school members, no more than 12 percent of pay for local police
officers, local firefighters, and county peace officers, and no more
than 11 percent of pay for all local safety members other than police
officers, firefighters, and county peace officers.
(c) Before implementing any change pursuant to subdivision (b),
for any represented employees, the employer shall complete the good
faith bargaining process as required by law, including any impasse
procedures requiring mediation and factfinding. Subdivision (b) shall
become operative on January 1, 2018. Subdivision (b) shall not apply
to any bargaining unit when the members of that contracting agency
or school district are paying for at least 50 percent of the normal
cost of their pension benefit or the contribution rates specified in
subdivision (b) under an agreement reached pursuant to Section 20516.