Proposed safety contracts establish trust fund for retiree care

Proposed safety contracts establish trust fund for retiree care

Michele Ellson

Medical costs for the city's public safety retirees will continue to rise, even with new money to help pay them. Graphic courtesy of the City of Alameda.

Highlights:

  • The City Council will consider amended five-year contracts for public safety workers on April 29 which would go into effect in November if approved.
  • The contracts establish a trust fund for retiree health benefits. The city would pay $7.5 million into the trust fund over 10 years; workers would pay between 2 percent and 4 percent of the top step of pay for their position into the fund over the next decade.
  • The contracts also offer wage increases that would raise pay at least 9.3 percent and change pension payouts to reflect a safety retiree’s top salary, and not their top three years of pay.

City officials have released proposed contracts for police and firefighters that they’re heralding as a fresh step toward trimming Alameda’s burgeoning pension and retiree health liabilities.

The amended agreements establish a trust fund that city officials say will generate $47 million to help cover health benefits for safety employees who retire in 2019 and beyond. The city would contribute $7.5 million toward the fund over the next decade, while employees would ultimately contribute between 2 percent and 4 percent of the highest salary someone in their position could earn, with their contributions also stretching over a decade.

The five-year agreements, which if approved would take effect in November, include raises that will increase safety workers’ pay by at least 9.3 percent by the end of the five-year deals, according to a spreadsheet provided by City Treasurer Kevin Kennedy – and more if the city does well financially or if a 2021 salary survey shows that local safety workers’ pay is lagging behind neighboring cities. The salary and associated benefit increases would cost the city an estimated $1.2 million over the life of the contracts, according to a city staff report.

The City Council will consider the contracts during a budget hearing to be held on April 29 at City Hall; members of the four safety unions whose leaders tentatively agreed to the contracts were expected to consider approving them before the council vote.

In a press release, city officials were quick to note that the trust fund won’t fully address the city’s unfunded retiree health care liabilities, which are nearly $92 million now and will grow to almost $107 million by 2019, according to an actuarial report provided by the city.

“The problem has been 60 plus years in the making and it will take 15 to 20 years to truly solve it,” City Manager John Russo was quoted as saying in the release.

The actuarial report says the trust fund will only cover a fraction of what’s owed and, unless more money is put into it, will run out of cash by 2035 – which could leave many of the workers paying into it without the benefit they paid for.

Firefighters union president Jeff DelBono characterized the trust fund proposal as the latest in a series of steps city and union leaders have taken over the past several years to address retiree pension and medical costs. He said he expects more money to be contributed to keep the fund healthy.

“We’re looking at it as a starting point,” DelBono said. “We want to see this trust fund succeed.”

Safety retirees who left before the benefit changes were made were eligible for a full pension of 3 percent of their top salary for each year served up to 30 years, plus lifetime medical care for themselves and their spouses. Safety employees hired before June of 2011 are eligible for those same benefits, but they are paying much more toward them than their predecessors: By the end of the current contract term, they’ll be paying 15 percent of their salaries toward their pensions, the highest rate in Alameda County.

Police and firefighters hired after June of 2011 aren’t eligible for retiree medical care for their spouses; in addition to paying higher benefit costs, those hired in 2013 and beyond will only be eligible to fully retire at age 57 with 2.7 percent of their salary for each year served under the state’s pension reform law, and they also pay into a supplemental retirement fund.

But the changes so far have barely made a dent in the city’s still-rising pension liabilities and growing annual retiree medical bills, because they don’t apply to workers who already retired with costly benefits – a source of frustration to residents who want the problems fixed today and not decades from now.

The city has more retirees receiving pensions and medical benefits than active safety workers, and is projected to owe $54 million toward benefits over the next 30 years for those employees, compared to $38 million for safety employees who are still on the job.

City staffers project that Alameda will pay $4 million a year toward health care for safety retirees without the new contracts, a budget presentation to be offered Thursday shows; it wasn’t clear what impact the new trust fund would have on that amount. Safety workers are expected to pay $1 million a year into the fund between 2016 and 2019.

DelBono said the wage increases will help workers keep up with the rising cost of living. A mid-level police officer now earning $94,140.80 a year in base pay, for example, would be earning at least $8,755.09 a year more by 2021, but would be paying $4,151.68 into the trust fund if they were hired before retiree medical benefits for spouses were terminated, plus increased pension and health care costs.

But higher salaries will also mean bigger pensions when workers retire and may ultimately mean higher employee costs for the city: Kennedy’s spreadsheet showed pension costs rising 4.6 percent as a result of the raises. By 2020, that same officer’s pension will cost 65 cents for every dollar of salary they earn under current projections; the city will owe 50 cents of that, with the officer paying the other 15 cents.

The contract also allows safety workers to receive pensions based on their top year of earnings, as opposed to an average of their top three years. It wasn’t immediately clear what the dollar impact of that change might be. A city official couldn’t be reached for comment by deadline Wednesday.

Also unclear: What will happen to the retiree health trust fund the city has already set up. That trust fund contains $2 million.

Related: City reaches tentative contract accords with public safety

Comments

Submitted by MJ (not verified) on Thu, Apr 16, 2015

If the city has $100 million in unfunded liabilities that are already difficult to pay, why would it agree to any pay raises on top of that?

Does the city have trouble attracting or retaining firefighters? I don't think so. Thousands of people apply for firefighter jobs. There is a surplus of labor that does not require a raise to work.
In the private sector, you only pay more to get or keep talent. Cancel the pay raise and put it towards the promises already made.

Giving pay raises based on the area average assures that the average will only move up.

When will this city wise up?

Submitted by LB (not verified) on Thu, Apr 16, 2015

The best part under the proposal: firefighters will receive “more [pay] if the city does well financially.” What is this, a profit-sharing plan? The Fire Department does not contribute to the financial well-being of the City; on the contrary, the Fire Department is the biggest financial drain on the City.

If the Union truly wants to tie the Department to the financial well-being of the City then fine, give the Department X% of the City budget each year to support its operations and cover its assumed pension liabilities, and then have the Chief make his/her case before the City Council each year for a sustained (or increased) % level of funding. Maybe then with this increased scrutiny of its performance and financial discipline (or lack thereof), the Department would take steps to reduce overtime pay (which totaled $1.16M in 2014) and stop all of its gamesmanship (like unreasonably high mandated staffing levels) used to pad (already excessive) base salaries and inflate pension calculations.