HomeMy WebLinkAboutMINUTES - 09212004 - C.77 TO: BOARD OF SUPERVISORS Contra
FROM: JOHN SWEETEN, County Administrator Costa
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DATE: SEPTEMBER 15, 2004 County
SUBJECT: RESPONSE TO GRAND JURY REPORT NO. 0409, ENTITLED "BUDGET WOES
AND LAYOFFS: THE CONTRIBUTIONS OF PENSION IMPROVEMENTS"
SPECIFIC REQUEST(S) OR RECOMMENDATION(S) & BACKGROUND AND JUSTIFICATION
RECOMMENDATION:
APPROVE response to Grand Jury Report No. 0409, entitled "Budget Woes and Layoffs: The
Contributions of Pension Improvements", and DIRECT the Clerk of the Board to forward the
response to the Superior Court no later than September 22, 2004.
BACKGROUND:
The 2003/2004 Grand Jury filed the above-referenced report on June 10, 2004, which was reviewed
by the Board of Supervisors and subsequently referred to the County Administrator, who prepared
the attached response that clearly specifies:
A. Whether the finding or recommendation is accepted or will be implemented;
B. If a recommendation is accepted, a statement as to who will be responsible for
implementation and a definite target date;
C. A delineation of the constraints if a recommendation is accepted but cannot be
implemented within a six-month period; and
D. The reason for not accepting or adopting a finding or recommendation.
CONTINUED ON ATTACHMENT: YES SIGNATURE:
-------------------------------------------------------------------------------------------------------s x L r`�t = ;e i' �>`. `-=-= ------------------
4_-RECOMMENDATION OF COUNTY ADMINISTRATOR RECOWETATION OF BOARD COMMITTEE
----APPROVE OTHER/ {
SIGNATURE(S)
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ACTION OF BO, D O--_NS #1k 3 a€ v{. #' APPROVE AS RECOMMENDED OTHER
APPROVED as and RMMRED to the.Finance C,cami.ttee for review and recamendations to the Board.
VOTE OF SUPERVISORS I HEREBY CERTIFY THAT THIS IS A TRUE
AND CORRECT COPY OF AN ACTION TAKEN
'( UNANIMOUS(ABSENT I' t>f$ ) AND ENTERED ON THE MINUTES OF THE
BOARD OF SUPERVISORS ON THE DATE
AYES: NOES: . . SHOWN.
ABSENT: ABSTAIN:
ATTESTED: SEPTEMBER 21,2004
CONTACT: JULIE ENEA(925)335-1077 JOHN SWEETEN,CLERK OF THE BOARD OF
SUPERVISORS AND COUNTY ADMINISTRATOR
CC: PRESIDING JUDGE OF THE GRAND JURY
GRANDJURYFOREMAN
COUNTY ADMINISTRATOR
HUMAN RESOURCES DIRECTOR
RETIREMENT ADMINISTRATOR ` s
DEPUTY
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Please see reverse for instructions and important information
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BOARD OF SUPERVISORS RESPONSE
TO GRAND JURY REPORT NO. 0409:
BUDGET WOES AND LAYOFFS. THE CONTRIBUTIONS OF PENSION IMPROVEMENTS
FINDINGS
1. The County's retirement pian provides for pensions based on an employee's age at
retirement, years of service and highest one year's compensation. While age and years
of service are relatively straightforward concepts, "compensation" creates certain
problems because it is more than basic salary and, in fact, is likely to include
adjustments to increase the employee's final year's income. The County uses the term
"Retirement Base,,,which includes normal salary plus other pay determined by CCCERA
to be included in retirement calculations.
Response: Partially disagree. The County also has a retirement plan,
Tier 2, which uses average compensation based on the highest three
consecutive years of compensation, rather than the highest one year's
compensation as described in the finding.
2. Ideally, pension costs would be paid during employees' working years so that money
paid into the pension system, plus investment income, is available in the future to pay
pensions which begin at retirement and continue until ended by death. The County
annually budgets for and pays a share of the estimated costs to keep the pension plan
financially sound. There are several components to these annual costs:
Response; Partially disagree. Retirement benefits for members
continue until ended by their deaths and the deaths of their-
beneficiaries, if any. Retirement benefits may also include disability
retirement.
a. The first component of the annual cost is the amount paid on account of the "employers
standard rate,,,which is determined by CCCERA's actuary. This rate is derived from a
prediction of how much should be paid now to fund the future expense for the pensions
of current employees. Currently this component adds approximately 19 percent to the
County's salary cost for non-safety employees and 35 percent for safety employees.
Response; Partially disagree. The first component of annual pension
cost is generally called the "normal"cost. CCCERA's actuary establishes
this rate annually. It is the amount the actuary determines needs to be
paid in a given year such that, when added to the return on investment
at an assumed interest rate and the employees'contributions, it will be
sufficient to fund the cost of pension earned during that year by current
employees.
For FY 2003-04, non-safety normal costs were approximately$46
million, which is equivalent to 12.3% of the County's salary cost for
these employees. Normal costs for safety employees, not including fire
Budget Woes and Layoffs: The Contributions of Pension Improvements September 15, 2004
County Response to Grand Jury Report No. 0409 page 2
districts, for FY 2003-04 were approximately$15.5 million, or 20.2% of
the County's salary cost for these employees. It should be noted that
the County does not make social security contributions for most safety
employees.
b. The second component of annual cost is an amount due CCCERA because the County
has agreed to pay a part of the employees' contributions (called "subvention").
CCCERA is required by pension law to calculate a rate for employees. However,
negotiated labor agreements compel the county to pay approximately 50% of the
retirement contributions otherwise payable by County employees. For non-safety
employees this subvention costs the County 2.4% of salary costs. For safety employees
the County's subvention cost is 3.7%. (Only safety employees have agreed to pay a
new additional 9 percent of wages, but that total is reached after a series of 2.25% steps
over the contract period. The County's agreement to pay the 50% covers only the basic
rates; it has not agreed to pay 50% of the new additional rate.)
Response. Partially disagree. There are two components of subvention
- the basic rate that was established at the inception of the County's
retirement program in the 1960s and cost-of-living adjustments that
have occurred since that time. The County pays a 50% subvention of
only the basic rate component of employee retirement costs. The
County does not subvent the cast-of-living component of the
employees'contribution rate.
The amount of the subvention paid varies by retirement plan and is
dependent upon the employee's individual age at entry into the
retirement system. For FY 2003-04, non-safety subvention costs were
approximately$10.4 million or 2.8% of salary costs, while safety
subventions were approximately $3.2 million or 4.1% of salary costs.
c. The third component of the county's annual pension cost is the amount required to cover
past and current shortages. Such shortfalls are determined by the CCCERA actuaries
and are called an Unfunded Actuarial Accrued Liability(URAL). A UAAL is created
when the benefits expected to be due and paid by the retirement fund are less than the
value of the assets expected to be available. Once a UAAL is created, the entire
amount is the County's obligation to CCCERA. Employees have no obligation to
contribute to reduce a URAL. CCCERA permits the amount of a URAL to be amortized
and pard, with interest, over twenty years.
Response. Partially disagree. A URAL is created when the benefits
expected to be due and paid by the retirement system are more (not
less) than the value of the assets expected to be available. The amount
of the URAL that exists in any given year depends on a number of
factors, including changes in actuarial earnings and other demographic
assumptions, actual market returns, and the amortization period
established by CCCERA.
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Budget Woes and Layoffs: The Contributions of pension improvements September 15, 2004
County Response to Grand Jury Report No. 0449 page 3
3. The County has in the past elected to pay off UAAL's by issuing pension obligation
bonds. In April 2003, for example, the county sold $322.7 million of pension obligation
bonds and paid the proceeds to CCCERA to pay off its URAL. This substituted one debt
(bonds)for another(UAAL), with the county obtaining a more favorable interest rate by
issuing the bonds. Annual debt service on pension obligation bonds is another direct
pension cost to the county.
Response: Agree, with the clarification that the Pension Obligation
Bonds sold by the County in April 2003 were used to pay off the VAAL
reported by CCCERA's actuary through December 31, 2001.
4. On October 1, 2002, the County granted significantly increased retirement benefits to all
County employees, safety and non-safety. Safety employees (generally Sheriff's
Deputies and other law enforcement personnel) become eligible to retire at 3% of salary
per year of service at 50 years of age. Previously, the standard was 2% at 55 years of
age. The jump from 2% to 3% created a 50% increase in retirement benefits, and since
the age reduction encourages earlier retirement, pensions will be payable over a longer
period. Non-safety employees now receive the 2% retirement benefit at an earlier age,
55 years, instead of the 60 years, which was the previous standard.
Response: Partially disagree. While the benefits approved by the Board
of Supervisors on October 1, 2002 did improve the retirement benefits
for many employees, particularly safety employees, the benefit package
did not cover all County employees. Employees represented by the
California Nurses Association will receive the improved retirement
benefits beginning on January 1, 2005.
In addition, the age requirement at which both safety and non-safety
employees reach the maximum benefit level did not change; rather, the
factors upon which retirement benefits are calculated changed. The
maximum retirement benefit for safety employees was increased from
2% per year of service at age 50 to 3% per year of service at age 50.
As for non-safety employees, the maximum retirement benefit
increased from 1.67% to 2% per year of service at age 55.
5. All of these benefit increases and retirement age reductions were retroactive for current
employees. Any eligible employee could retire immediately with the new increased
benefits before paying any increased pension contributions. The costs of retroactive
increases are borne by the county.
Response: Partially disagree. The County did not lower the age
standard for retirement; rather, it adjusted the factors upon which
retirement benefits were calculated, as described in the County's
response to Finding No. 4. Given that the County is responsible for the
retroactive costs associated with these benefits for both current and
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Budget Woes and Layoffs: The Contributions of Pension Improvements September 15, 2004
County Response to Grand Jury Report No. 0409 Page 4
retiring employees, the retirement date for those employees is
immaterial with respect to the retroactive benefits costs.
6. Between October 1, 2002 and October 1, 2003, 286 County employees retired and
received enhanced benefits. Approximately 22% of the new retirees had been safety
employees. The retroactive costs became part of the enhanced benefits UAAL.
(CCCERA did transfer$100 million from is Unrestricted Reserve to be applied against
the UAAL, and the County received the benefit of a substantial part of the transfer. See
Finding 11.)
Response: Partially disagree, County payroll records indicate that
between October 1, 2002 and October 1, 2003, 281 County employees
retired, of which 82, or.29.1�/o, were safety employees.
7. The County's obligations to CCCERA are paid from the same sources as the direct
wages of employees. Almost half of the county's employees' wages and benefits are
paid by allocation from state or federal government grants or from county enterprise
funds, while the remaining wages and benefits are paid from the county's general fund.
(Enterprise funds are the operating funds of a government operation that is expected to
be profitable or self-supporting.) Obligations to CCCERA must be paid from the general
fund in the event that government grants terminate, enterprise funds are reduced, or
allocations are insufficient.
Response: Agree. Note, however, that it is generally the County's
policy not to backfill state and federally-sponsored programs where
funding has been curtailed or greatly reduced; rather, the County has
historically cut these programs back to fit within the available funding
streams. To the extent that state and federally sponsored programs
are reduced or eliminated due to lack of funding, the County's
contribution for the attendant normal costs and subvention payments to
CCCERA would be reduced or eliminated. While the County would
remain responsible for any unfunded liability that might emerge, such
liability would not result from the elimination of state and federal
funning per se, but rather due to future modifications of demographic or
economic assumptions by CCCERA's actuary.
8. Total retirement expense for the County as a percentage of the adopted General Fund
Budget has risen dramatically.
Total Retirement Percent of
Expense General Fund
1994-1995 Total Retirement $37.8 million 5.60%
19981999 " $54.8 million 7.38%
2001-2002 " $69.6 million 6.72%
2003-2004 Budgeted $102.6 million 9.43%
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Budget Woes and Layoffs: The Contributions of Pension Improvements September 15, 2004
County Response to Grand Jury Report No. 0409 Mage 5
2004-2005 Preliminary Estimate $143.4 million not available
This 2003-04 Budgeted figure includes a one-time $20 million offset, resulting from the
2003 sale of pension obligation bonds. Otherwise 2003-2044 total retirement expenses
would be $122.6 million or 11.27% of the General Fund.
Response: Partially disagree. There are other funds beside the
County's General Fund that contribute towards the retirement expenses
of County employees, including the County's Hospital Enterprise Fund,
Health Maintenance Organization, Law Enforcement Fund, and Road
Fund. The table below breaks out the retirement expenses paid from
the County General Fund as well as the amount paid in aggregate for all
funds.
E Retirement Retirement
Expense -- Expense --
General Fund Asa % of All Funds As % of
Fiscal Year millions General Fund millions Alf Funds
1994-95 $ 29.4 5.78 % $ 37.4 4.23 %
1998-99 41.6 7.39 % 54.8 5.10 %
2001-02 53.8 6.73 % 69.6 4.74 %
.2003-04 80.6 9.32 % 102.6 6.34
2004-05 103.9 12.26 % 139.5 8.24 %
9. CCCERA uses a method called five-year smoothing to take investment gains and losses
into income. High income was realized during the rising stock market which ended in
1999. Five-year smoothing caused the retirement system to show gains in its investment
returns during the 2000-2002 down market, despite the actual investment losses during
the period. Such gains were reflected in its Unrestricted Reserve.
Response: Agree, with the clarification that the aforementioned gains
were reflected in the Unrestricted Designation account, not the
Unrestricted Reserve.
10. CCCERA also maintains a Market Stabilization Account, which represents the deferred
return developed by smoothing realized and unrealized losses and gains (using five-
year smoothing) but smoothing only the deviations from total market return from the
return target adopted by CCCERA's Board. The target return during 2002 was 8.5%.
Market losses over the dawn market period caused the following negative balances in
the Market Stabilization Account:
Date Balance
12/31/09 ($385,448,325)
6/30/02 ($568,385,973)
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Budget Woes and Layoffs: The Contributions of Pension improvements September 15, 2004
County Response to Grana Jury Report No. 0409 Page 6
Response: Partially disagree. CCCERA's 2002 target rate of return was
adjusted first from 8.5% to 8.35% and later to 8.0% in recognition of
the downturn in the equity markets that occurred after many years of
double-digit returns.
At.lune 30, 2003, the Market Stabilization Account balance was a
negative $508,612,977, which reflects the impact of market losses from
2000 to 2002. By December 31, 2003, however, this balance had
improved to a negative $237,305,781. This reduction in reported losses
is attributable to the strong market gains of 23.5% that CCCERA's
investments achieved in 2003.
11. CCCERA's Unrestricted Reserve on 12/31/01 showed a positive balance of$404.6
million. The losses in the Market Stabilization Account, however, showed that the
apparent surplus in the Unrestricted Reserve was illusory. Nevertheless, $100 million
was transferred by the CCCERA Board from its Unrestricted Reserve in 2002 to reduce
the URAL. (See Finding 6.) The Unrestricted Reserve is no longer available to "bail out"
the County as County retirement costs rise in the immediate future.
Response: The County agrees that the balance in the unrestricted
Designation account is currently insufficient to subsidize any increased
retirement costs in the near future.
12. As of January 1, 2002, the County's total outstanding liability for past pension costs was
over $832 million. As of October 31, 2003, this had increased to over$1.263 billion as
follows:
Pension Obligation Bands $587,200,000
UAAL Liability as of 12-31-02 176,800,000
Paulson Liability(See Finding 14) 24,800,000
Market Stabilization Account(MSA Losses
as of 6-30-03 410,200,000
Actuarial recommended assumptions not
adopted in 2001 (see Findings 13 b and c 64.200.000
Total $1,263,000,000
Response: Agree. Note below that the most recent information from
CCCERA and the County's AuditorjController's office indicates the
following known and actuarially determined liabilities attributable to
Contra Costa County:
Pension Obligation Bonds Outstanding (as of
6130104) $587,220,000
URAL Liability (as of 12131102) 176,820,000
Additional Paulson Settlement Liability (as of
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Budget Woes and Layoffs: The Contributions of Pension improvements September 15, 2004
County Response to Grand Jury Report No. 0403 Page 7
12131103) 24,800,000
Market Stabilization Account (MSA) Losses -
C'ounty's portion is approximately 90% of total
(as of 12131103) 213,575f 000
Actuarial recommended assumptions not
adopted in 2001
§4.200,00
TOTAL $
1,064,615,000
13. Any URAL is not paid for proportionately by employers and employees. (See Finding 2
c.) It is the sole responsibility of the County and therefore, the taxpayers. The UAAL
generally continued to increase every year since 2001, due to:
a. The SOS approved retroactive enhanced pension benefits.
b. The CCCERA Board selected overly optimistic rates of investment return against
its actuary's recommendation.
C. The CCCERA Board refused to adopt their actuary's recommendations
concerning employee morbidity and employee marriage benefits.
All of the above caused the employees' and employer's contributions to be
underestimated. The employer alone must make up for the cost of the shortfall as part
of the UAAL.
Response: Agree. The table below lists each of the components than
make up the County's total potential retirement liability, and shows how
each component has changed over the past two and a half years:
Total Potential County Retirement Liability
(in millions)
.January 1, October 31, .Tune 30,
2002 2003 2004
Pension Obligation $ 297 $ 587 $ 587
Bonds Outstanding
UAAL Liability 319 (l) 177 (2) 177 (2)
Additional Paulson
Settlement 0 25 25
Market Stabilization
Account (MSA) Losses -
County's portion is
approximately 9010 of
total MSA 346 410 213
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Budget Woes and Layoffs; The Contributions of Pension Improvements September 15, 2004
County Response to Grand Jury Report No. 0409 Page 8
Actuarial recommended
assumptions not
adopted in 2001 �Q64 64
TOTAL $ 962 $1,263 $ 1,065
(1) UAAL as of 12131101, which includes cost of the enhanced retirement
benefit granted October, 2002.
(2) UAAL as of 12131/02
As stated in the County's response to Finding No. 3, the County
extinguished its $319 million UAAL as of 12131101 through the
issuance of$322 million in Pension Obligation Bonds in April 2003. The
County undertook this bond financing to lower the long-term interest
cost associated with amortizing this unfunded liability over time.
On September 15, 2003, CCCERA's actuary released a report that
estimated that net of the aforementioned extinguishment of the $319
million in UAAL, the County's UAAL as of December 31, 2002 was
$176.8 million. Of this amount, $122 million in new UAAL was due to
the Low-erin of the long-term earnings assumption from 8.3S% to
8.0%. The actuary attributed $44 million in new UAAL to changes in
demographic and other actuarial assumptions and $9 million to normal
salary increases.
As the table above shows, the County's total potential retirement
liability also increased over the past two and a half years due to
changes in the actuarial forecast of liability related to the Paulson
settlement ($24.8 million) and due to demographic assumption changes
recommended by CCCERA's actuary ($'64.2 million).
Finally, the forecast of potential retirement liability has fluctuated over
this period due to market losses and earnings shortfalls during the
unprecedented bear market of 2000 -- 2002. As previously noted in the
County's response to Finding No. 12, CCCERA's strong market earnings
in 2003 reduced the County's share of MSA losses to $213 million as of
June 30, 2004.
14. In February 2004, the CCCERA Board again refused to follow its actuary's
recommendation concerning assumed rate of return on investment. In the near future
CCCERA's actuary will issue a new report and recommendations, on the non-economic
assumptions, including morbidity and marriage benefits.
Response; Partially disagree. In February 2004, CCCERA's actuary
suggested that the Board consider lowering its assumed rate of return
from 8% to 7.75010, but concurred that using a long-term rate of return
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Budget Woes and Layoffs: The Contributions of Pension Improvements September 15, 2004
County Response to grand Jury Report No. 0409 Page 9
of 7.90/o was nevertheless a reasonable rate of return given the
retirement system's long-term earnings trends and track record.
15. As stated in Find No. 1, a retiree's pension under the 1937 Retirement Law is based on
three factors: age, years of service and final compensation. A 1997 California Supreme
Court decision in the Ventura case included various types of payments in salary
computations to establish "final compensation"for pension purposes. The Paulson case
was brought by retired County employees to obtain, essentially, the same treatment.
The Paulson litigation was settled and the settlement binds the County.
a. The most recent listing of county pay items lists some 69 separate items which
are included in compensation to implement Ventura and Paulson. The vast
majority of the types of pay included are specialized in nature and take into
account particular skills or qualifications of employees. Following are examples
of types of remuneration included in final compensation since the
Ventura/Paulson cases: Merit pay, longevity pay, standby pay, bilingual pay,
holiday pay, educational incentive pay and uniform allowance.
b. Certain types of monetary remuneration are not included in compensation.
Reimbursements for job-related expenses and overtime compensation (for work
in excess of what is normal work time)are examples of such payments.
Generally, the cash value of common fringe benefits such as employer paid
health insurance and retirement contributions is not included in compensation for
pension calculations.
Response: Partially disagree. From the County's perspective, the
purpose of the Paulson litigation was to limit employer liability for
additional costs of the Ventura decision and to expedite the processing
of claims for retroactive benefit increases.
16. Cash received by some management employees (both non-union and union members)
in exchange for certain benefits (called a sell-back) during the final twelve months of
employment may be used to "spike"the final year's compensation. A sell-back of
accumulated vacation is an example.
a. Some managers are permitted to sell-back unused vacation (within certain
limits). Ventura/Paulson merely requires that amounts received for a sell-back
be included in final compensation. Agreeing to allow employees to sell back the
vacation is a concession made by the county. Without that concession, the
spiking could not occur.
b. Managers who have unused vacation can spike their final year compensation by
selling back the maximum permitted at the end of the calendar year preceding
retirement and another maximum amount in the next calendar year. By retiring
before twelve months passes after the first sale, both sale amounts are included
in compensation for retirement purposes.
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Budget Woes and Layoffs., The Contributions of Pension Improvements September 15, 2004
County Response to Grand Jury Report No. 0409 Page 10
C. Hypothetically, a Manager with long tenure and many hours of unused vacation
can spike his or her final compensation and pension by almost 20% by
calculated use of this vacation.
Response: Agree. The County's vacation sell back program is
structured as a longevity incentive plan that encourages employees to
stay with the County over the course of their careers. The program
provides increasing monetary rewards over time to eligible County
employees who choose to sell back rather than use vacation leave, with
increased annual vacation leave granted to those employees who hit
various tenure milestones.
Employees who choose to sell back vacation leave in lieu of receiving
their vacation benefit are subject to payroll withholding taxes and make
additional contributions to the retirement system when receiving this
additional compensation. As such, vacation sell back is a legitimate
form of compensation when determining an employee's final year
compensation.
17. Of the 50 highest paid county employees who retired in the year following October 1,
2002, 30 spiked their final compensation for retirement by selling-back unused accrued
vacation. Twenty-six of those 30 sold back vacation in two calendar years but within a
year of retirement.
Response: Agree, with the clarification that the final compensation of
thirty of the fifty County employees with the highest base 12a among
retiring employees (not necessarily the highest paid) in the year
following October Y, 2002 was adjusted as a result of the sale of
accrued vacation time.
18. No changes were made in 2002 to the County's rules on vacation sell-back to reduce
the impact of rules which permit salary augmentation.
Response: Agree.
19. Assembly Bill 55, enacted in 2003, provides for purchase of additional service credit
(called "air time"). This benefit is not available unless the BOS authorizes it, which it has
not done. If authorized, employees could elect to purchase up to five years of service
credit(to add to their years of actual employment)to add to their retirement. Since the
employees pay the additional contributions (usually at or about the time of retirement)
"air time" is claimed to be a "cost neutral" benefit. "Air time"would not be cost neutral if
any subsequent increase in retirement benefits is approved by either the BOS or the
OCCERA Board.
Response: Agree.
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Budget Woes and Layoffs: The Contributions of Pension Improvements September 15, 2004
County Response to Grand Jury Report No. 0409 Page 11
20. Senate Bill 274, enacted in 2003, authorized an optional benefit called "DROP"
(Deferred Retirement Option Program)for specified safety members. "DROP" permits
an employee who is eligible to retire to keep working at normal pay, but without any
increase in pension benefits. The pension fund treats the employee as if retired and
sends monthly retirement checks to an escrow account. When the employee does
retire, a lump sum is paid from the escrow account and the retiree starts receiving
monthly pension checks. The BOS has not elected to adopt this benefit. Although this
benefit may appear to be cost neutral at the time of retirement, it would not be cost
neutral if any subsequent increase in retirement benefits is approved.
Response: Agree.
21. A defined contribution pension plan is an alternative to a defined benefits plan. Under a
defined contribution plan the employer agrees to make a fixed or determinable
contribution, which may change over time. Contributed funds are invested, as in a
defined benefits plan, but investment risk is borne by the employees who are members
of the pension plan. The employer has no risk equivalent to the risk of being subject to
a future UAAL.
Response: Agree,
RECOMMENDATIONS
The 2003-04 Contra Costa County Grand Jury recommends that:
1. The BOS promptly close the existing defined benefits retirement plan to all new non-
union employees and adopt a defined contributions plan for non-union employees hired
after the new plan is adopted.
Response: Will not be implemented because it is not reasonable. The
recommendation is not authorized under current state law. In addition,
it would not be feasible to implement this new retirement plan in the
absence of a statewide approach that covers all other government
employers, as it would otherwise place the County at a serious
competitive disadvantage in the recruitment and retention of
employees.
2. The BOS target pension provisions in labor agreements as they expire and negotiate
changes to replace the defined benefits retirement plan with a defined contributions plan
for all union employees hired after the effective dates of the changes in the labor
agreements.
Response: Will not be implemented because it is not reasonable. The
recommendation is not authorized under current state law. In addition, it
would not be feasible to implement this new retirement plan in the
absence of a statewide approach that covers all other government
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Budget Woes and Layoffs: The Contributions of Pension Improvements September 15, 2004
County Response to Grand .fury Report No. 0409 Page 12
employers, as it would otherwise place the County at a serious
competitive disadvantage in the recruitment and retention of employees.
3. The BOS review, at the earliest practicable time, all pay provisions and ether
arrangements which can be used by an employee to spike final compensation at
retirement. Following the review, the BEDS eliminate those pay provisions and
arrangements (e.g., vacation sell-back), which exceed the requirements of the County
Employee Retirement Law of 9937 and Ventura/Paulson.
Response: With respect to the recommendation that the County study
all pay provisions and other arrangements that can be used to inflate an
employee's final compensation at retirement, the recommendation will
be implemented. The County Administrator will undertake a study, to
be completed by December 3, 2004, of compensation factors that are
included in the retirement base, and make its findings and
recommendations, if any, available to the Grand.jury upon request.
With respect to the recommendation that the County eliminate those
pay provisions that exceed the requirements of the County Employee
Retirement Law of 1937 and the Ventura and Paulson decisions, the
recommendation will not be implemented because it is not reasonable.
Any changes in wage and benefit policies and practices would need to
be precipitated by a review of the legal, administrative, budgetary, and
collective bargaining implications of the proposed changes. Such a
review has not yet been conducted.
4. The BOS enact the planned changes of recommendation 3 for non-union employees
without delay and target the planned changes for labor agreements in the next
negotiating cycles.
Response: Will not be implemented because it is not reasonable for the
same reasons as expressed in the County's response to
Recommendation No. 3.
5. BOS not approve any pension benefit changes which would require additional funding
from the County.
Response: Will not be implemented because it is not reasonable, since
it would prevent the Board of Supervisors from engaging in the "good
faith negotiations"with employee representatives as required by State
law.
6. BOS not approve any pension benefit changes which are supposed to be cost neutral
(such as provided by AB 55 and SB 274) unless CCCERA's actuary certifies that there
12
Budget Woes and Layoffs; The Contributions of Pension Improvements September 15, 2004
County Response to Grand Jury Report No. 0409 Page 13
is cost neutrality both at the time of adoption and in the future under any foreseeable
circumstances.
Response: Will not be implemented because it is not reasonable, since
it would prevent the Board of Supervisors from engaging in the "good
faith negotiations"with employee representatives as required by State
law.
13
"Ann Gardner" To: KSinc@cob.cccounty.us
<AGARD@sc.co.contra cc:
-costa.ca.us> Subject: Re:Grand Jury Reports
09122/2004 01:03 PM
I did receive them (Grand Jury Reports #0404 and 0409. Thanks!
>>> <KSinc@cob.cccounty.us> 9/2.2/2004 11:54:59 AM >>>
Hello Ann,
Thank you for your patience this morning. Will you reply to this e-mail as
verification that you received. Grand Jury Reports # 040,E & # 0409 from me
this morning for the Grand Jury and Superior Court.
Thank you very much.
Kathy Sinclair