Hoping future Santa Monica taxpayers – and council members – do not pay the price for poor fiscal planning, the City Council unanimously adopted a resolution to amend the contract between the California Public Employees’ Retirement System (CalPERS) and City Hall on Tuesday, potentially saving the coastal municipality as much as $5.4 million per year by 2032.
Council members also unanimously approved, in its first reading, an ordinance that would authorize the contract amendment between City Hall and the CalPERS Board.
The amendment, once adopted in second reading, will “establish a second tier of benefits for employees” who are classified as miscellaneous (non-safety) and hired on July 2, which is the first day of the City of Santa Monica’s payroll period. CalPERS benefits will remain the same for employees in miscellaneous (non-safety) classifications who are hired before or on July 1.
“Our pension strategy is three-fold,” City Manager Rod Gould said. “Changing the pensions that are offered our future employee is one piece; changing what our employees pay for their pension is the second; and, paying off our unfunded liability to the extent that we can is our third.”
According to Human Resources Director Donna Peter, the amended agreement, once in effect, would alter how City employees earn retirement benefits when they retire at 55.
Currently, if a City employee retires at age 55, they will earn 2.7 percent of “the 12 highest paid consecutive months,” multiplied by the number of years served (up to 30 years). On July 1, the figure will change to two percent of “the 12 highest paid consecutive months.”
Also, current City employees and those hired through July 1 “would also continue to share the cost of additional retirement benefits.” City Hall would be reimbursed 6.7 percent “of the earnings reportable to CalPERS on a pre-tax basis” and “would continue … to pay and report the value of Employer Paid Member Contributions (EPMC).”
Those hired by the City on July 2 and after will not be eligible for EPMC even though the pre-tax employee contribution is higher.
“Employees in the second tier would not be eligible for EPMC as they would be contributing 7 percent of the employee’s contribution on a pre-tax basis,” the staff report to council members stated. “They would not be required to reimburse the City a percentage of reportable earnings unless otherwise negotiated.”
Council member Bobby Shriver supported the amendment, but prodded staff for not including a detailed financial analysis in its report to the dais.
“This is the single biggest controllable expense of the city,” Shriver said.
He added staff should be required to make a thorough financial analysis in matters such as where much is at stake so that stakeholders can be informed and council members can make the best policy decisions.
“I think that the council’s policy ought to be that whenever there is an amendment to any pension document or any discussion of pension payments that we show this community and the council a detailed analysis of that. It’s an enormous sum of money in play,” Shriver said. “I just think that should be our ‘no exceptions’ policy.”
Gould agreed, adding that an in-depth financial analysis was not included in the staff report presented to Shriver and his colleagues on March 27 because council members had already considered a relevantly similar breakdown last year when City Hall and key public employees negotiated the new CalPERS terms in a cost-cutting effort.
As part of that negotiation, public safety employees – such as police officers and firefighters – heeded a request to pay more into their respective pensions.
The City Manager pointed out as a result of last year’s negotiations and once the approved ordinance is in effect, Santa Monica will experience a significant savings in the long-run.
“It will be some time before there is a significant changeover in workforce,” Gould said. “Nonetheless, we believe that these savings will accrue at about $269,000 per year, topping out at approximately $5.4 million per year in pension savings when the full workforce turnover occurs, probably in 20 years. This change really doesn’t help us balance the budget much in the immediate term. Your successors several times over will thank you for taking this action.”
According to Peter, the approved ordinance will be on the council’s agenda for a second reading and formal adoption at its April 24 meeting.
Council member Pam O’Connor was not present at the March 27 meeting.