HomeMy WebLinkAboutMINUTES - 08162005 - C98 r
%� Contra
TO: BOARD OF SUPERVISORS *� _
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Costa
FROM: JOHN SWEETEN County Administrator
• �� County
DATE: AUGUST 4, 2005 °s A-----==_
SUBJECT: RESPONSE TO GRAND JURY REPORT NO. 0509,ENTITLED "REDUCE
PENSION TENSION"
SPECIFIC REQUEST(S)OR RECOMMENDATION(S)&BACKGROUND AND JUSTIFICATION
RECOMMENDATION: REVISED
APPROVE response to Grand Jury Report No. 0509, entitled "Reduce Pension Tension", and
DIRECT the Clerk of the Board to forward the response to the Superior Court no later than August
3 0, 2005.
BACKGROUND:
The 2004/2005 Grand Jury filed the above-referenced report on June 9, 2005,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 findi or r commendat' n.
CONTINUED ON ATTACHMENT: YES--------------------- SIGNATURE: �
-------------------
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RECOMMENDATION OF COUNTY ADMINISTRATOR RECOMM ATION OF BOARD COMMITTEE
APPROVE OTHER
SIGNATURE(S):
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
ACTION OF BOARD ON O t* b� APPROVE AS RECOMMENDED *C OTHER �
The Board requested is topic be brought bacK as a Snort Discussion item at a meeting in the.near future for a broader
disCUssion.Public comment provided by Kris Hunt of the Contra Costa Taxpayers Asscciatim.
VOTE OF SUPERVISORS I NtKtt3Y U=K I IF THAT THIS IS A TRUE
AND CORRECT COPY OF AN ACTION TAKEN
UNANIMOUS(ABSENT ) AND ENTERED ON THE MINUTES OF THE
BOARD OF SUPERVISORS ON THE DATE
AYES: NOES: SHOWN.
ABSENT: ABSTAIN:
ATTESTED: AUGUST 16,2005
CONTACT: JULIE ENEA(925)335-1077 JOHN SWEETEN,CLERK OF THE BOARD OF
SUPERVISORS AND COUNTY ADMINISTRATOR
CC: PRESIDING JUDGE OF THE GRAND JURY
GRAND JURY FOREMAN
COUNTY ADMINISTRATOR
RETIREMENT ADMINISTRATOR
TREASURER-TAX COLLECTOR
BY , DEPUTY
REVISED BOARD OF SUPERVISORS RESPONSE TO
GRAND JURY REPORT NO. 0509: REDUCE PENSION TENSION
FINDINGS
1. County employees are covered by a DB Plan that provides a pension based on the employee's
age at retirement, years of service, and final average salary ("FAS").
Response: Agree, with the clarification that final average salary refers to final compensation
for retirement purposes, which may include other items of compensation beyond base salary
(see the County's response to Finding No. 14).
2. ADC Plan, as the name implies, defines the contribution to be made each year the plan is in
operation. An allocation formula specifies a percentage of compensation to be contributed by
the employer and the employee. The money grows tax-deferred until withdrawn from the
plan. Each employee's benefit depends on how much was contributed in his or her name and
how well the plan's investments performed. The cost to the employer of a DC Plan is more
predictable than for a DB Plan.
Response: Agree, with the clarification that contributions may be defined on a monthly basis
or another periodic basis other than yearly.
3. Equitable sharing of pension costs and risks between employer and employees promotes
shared responsibility for the financial health of the pension plan. It reduces the incentive for
either employer or employees to advocate changes that result in disproportionate costs to the
other party.
Response: Partially disagree. While the equitable sharing of pension costs and risks between
employer and employees promotes shared responsibilityfor the financial health of the pension
plan, it may not reduce the incentive to advocate for future changes, regardless of which party
assumes the cosi For example, in 2002,Deputy Sheriffs Association employees demanded
the enhanced retirement benefit of 3% at 50, and agreed to assume a 9% increase in employee
contribution to cover the increased cost of that benefit to the County.
4. In addition to the DB Plan, County employees may participate in a DC Plan.
Response: Agree, with the clarification that County employees must participate in the
County's defined benefit(DB)plan as required by the County Employees Retirement Act of
1937(hereinafter 11137Act'9.
5. In the early 1980s,to deal with rising retirement costs,the County established a new benefit
tier("Tier 2")that offered a lower level of benefits and lowered costs.
Response: Agree.
6. In 2002,the County and most of its unions agreed to increase retirement benefits significantly
for County employees. The maximum retirement benefit for safety employees(generally law
Reduce Pension Tension August 4,2005
County Response to Grand Jury Report No.0509 Page 2
enforcement personnel and others whose job may put them in harm's way) 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. Employees represented by the California Nurses Association received the improved
retirement benefits beginning on January 1, 2005.
Response: Agree, with the clarification that the enhanced benefit had no impact on the
retirement benefits of general employees who retired after 2002 after age 62%.
7. Total retirement expense for the County in various fiscal years ("FYs") has increased as
follows:
Amount
Fiscal Year millions
1994-1995 $ 37.4
1998-1999 54.8
2001-2002 69.6
2004-2005 (County estimate) 140.1
2005-2006 (County estimate) 177.3
Response: Agree, with the clarification that the preceding figures do not represent increases
in retirement expense, but actual or estimated retirement expense for all County funds for the
period indicated. The County's latest estimate for fiscal year 2004/05 is $139.5 million.
8. According to data compiled by the California Association of Public Retirement Systems, as of
December 31, 2003,the percentage of the County's salaries going for retirement benefits is
higher than any other county in the state. For every salary dollar paid,the County pays an
additional 49 cents for safety employee pensions and 23 cents for general employee pensions.
Response: Partially disagree. These figures appear to have been taken from the summary
page of Contra Costa County Employees Retirement Association's (CCCER,4s)December 31,
2003 Actuarial Valuation, and include a blended rate of County and Districts and assume a
50%subvention of employee basic rates. The rates quoted for CCCER,4 are not valid for
Contra Costa County because Districts pay a higher employer contribution rate to CCCERA
(the UAAL portion of the District rate has not been reduced by the issuance of Pension
Obligation Bonds). County rates in effect from July 1, 2005 through June 30, 2006(from
pages 24-26 of the December 31, 2003 valuation)payable to CCCERA are as follows:
Tier 1 Tier 3 Safety
Employer Rate before POB servicing 21.71 19.27 38.90
50%Subvention of employee rate 2- 3,22 4_53
Subtotal before POB servicing 24.68% 22.49% 43.43%
Safety Memorandum of Understanding -- -- (9.00)%
(Employees pay a portion of the employer cost)
Net Employer Rate 24.68% 22.49% 34.43%
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County Response to Grand Jury Report No.0509 Page 3
In addition, the value of the comparisons contained in the California Association of Public
Retirement Systems report should be discounted on the basis that some of the systems reported
use different time delay periods in which new rates become effective, e.g.,some use 6 months
and some use 18 months.
9. The County pays 50%of an employee's portion of the Basic Cost, or basic rate, component
of his or her pension plan. For FY 2003-2004,this subsidy amounted to $13.6 million.
Response: Partially disagree. In fiscal year 2003/04, the cost of the County's 50%subsidy of
the employee basic rate was $13.9 million for all County funds (excludes special districts).
10. About one-third of the counties in California base FAS on the employee's highest thirty-six
consecutive months' compensation.
Response: Agree. According to information provided by the County's pension consultant, as
of fiscal year 2004/2005, there were 48 general member benefit tiers and 35 safety member
tiers in operation among counties governed by the '3 7 Act. Among the 48 general member
tiers, 31 have a 12-month final compensation period and 17 have a 36-month final
compensation period. Among the 35 safety member tiers, 26 have a 12-month final
compensation period and 9 have a 36-month final compensation period.
11. For County employees, FAS is computed based on the employee's highest twelve
consecutive months' compensation, except for the service of employees with service in Tier
2, where FAS is based on the highest thirty-six consecutive months' compensation.
Response: Agree, with the clarification that Tier 3 disability also requires the use of a 36-
month final compensation period.
12. Pension benefits may not exceed 100%of FAS.
Response: Agree. The '37Act stipulates that "in no event shall the total retirement allowance
exceed the member's final compensation'
13. A 1997 California Supreme Court decision in the Ventura case ("Ventura") included various
types of payments in salary computations to establish FAS for pension purposes. The Paulson
case ("Paulson")was brought by retired County employees to obtain essentially the same
treatment. Paulson was settled and the settlement binds the County.
Response: Partially disagree. The purpose of the Paulson litigation was to achieve agreement
as to the proper implementation of the Ventura decision for Contra Costa County retired
employees. From the County's perspective, the Paulson litigation also limited employer
liability for additional costs of the Ventura decision and helped to expedite the processing of
claims for retroactive benefit increases. The Ventura decision expanded the definition of
compensation for purposes of calculating retirement benefits by including forms of
compensation other than salary in the calculation of benefits.
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County Response to Grand Jury Report No.0509 Page 4
14. FAS is computed using an employee's base pay, increased by salary differentials (e.g., shift
premiums) and other items named in Ventura and Paulson.
Response: Partially disagree. Final average salary or FAS is not a recognized industry term
because "salary"and "compensation"are different. The industry term for this quantity is
"final compensation for retirement purposes"or "fi"nal compensation"which,for clarity, the
County has used throughout its responses to the findings and recommendations in this report
15. As a result of Ventura and Paulson,proceeds to the employee from the sale of unused
vacation time are included in FAS for purposes of calculating retirement benefits. In addition,
accrued but unused vacation paid on the retirement date is also included in the calculation.
Response: Agree, with the clarification that management/unrepresented employees can sell
only up to one-third of their annual vacation accrual in any calendar year. Pay from sale of
vacation is included in final compensation for purposes of calculating retirement benefits. In
addition, up to one year of vacation accrual is eligible for inclusion in final compensation for
all Tier 1, Tier 3 and Safety employees. When an employee has service credit under Tier 2, the
36-month final average compensation is calculated using all vacation accruals paid out at
retirement.
16. Employees eligible for sale of unused vacation are allowed to conduct such sales once in a
calendar year. Two such sales, occurring in two separate calendar years, but both within the
twelve-month period before retirement, may both be counted in the employee's FAS. In one
instance, vacation related adjustments exceeded thirty-seven percent of base salary.
Adjustments such as these may make the twelve months of compensation used for calculating
retirement benefits substantially greater than the employee's base salary.
Response: Agree, with the caveat that the County is neither aware of an instance in which
vacation-related adjustments exceeded 3 7% of base salary nor does it appear to be
mathematically possible. Without more specific information, the County cannot directly
respond to the example cited by the Grand Jury. It is possible for vacation, when aggregated
with other compensation items (differentials, longevity pay, etc.), to increase final
compensation by amounts in excess of 37% of base pay.
17. Generally, for state and local government employees in California, reductions to retirement
benefits only apply to future hires.
Response: Agree. Retirement benefits for current and past employees are generally
considered a vested benefit and cannot be legally revoked.
18. Several parties—Governor Schwarzenegger,the Howard Jarvis Taxpayers Association, and
Assemblyman Keith Richman, among others—have proposed major changes to the structure
of public employee pension systems. These parties have acknowledged the difficulty in
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County Response to Grand Jury Report No.0509 Page 5
changing the rules for calculating pension benefits for current employees in that the changes
they have proposed would apply only prospectively to employees hired after June 30, 2007.
Response: No response required(per the Grand Jury).
19. Assembly Bill 55 ("AB55"), enacted in 2003, allows the County to permit employees to buy
up to five additional years of service toward their retirement. The County has not adopted the
provisions of this bill.
Response: Agree.
20. Senate Bill 274 ("SB274"), enacted in 2003, authorized a deferred retirement option program
("DROP") for specified safety members. Under a DROP, an employee enters into an
agreement with the pension system to "retire"but actually keeps working. During the DROP
time, the pension system invests the employee's retirement benefit in a special account, while
the employee continues to earn a regular paycheck. At the end of the DROP period, the
employee retires and receives an additional check from the retirement system based on how
well the DROP investment account has done. The County has not adopted the provisions of
this bill.
Response: Agree.
21. A significant number of the County's union contracts (Memorandums of Understanding)
("Mous") expire on September 30, 2005.
Response: Agree.
RECOMMENDATIONS
County Comment. The Grand Jury has made many recommendations worthy of further
consideration by the County. The Board of Supervisors notes, however, that some of the Grand
Jury's recommendations pertain to issues which are the subject of the County's current
negotiations with employee organizations. While the Board makes every effort to provide direct
and complete responses to the Grand Jury's recommendations, it is limited in its ability to respond
to those recommendations before concluding its obligations under the Meyers-Milias-Brown Act
("MMBA'9- In order to bargain in good faith under the MMBA, the County may not take a
specific position on matters that are or may be the subject of labor negotiations before concluding
its bargaining obligations. In those instances, the County has indicated in its responses that it may
not directly respond to the Grand Jury's recommendation.
The 2004/05 Contra Costa County Grand Jury recommends that the Board of Supervisors:
1. Vigorously support major pension reform at the state level.
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County Response to Grand Jury Report No.0509 Page 6
Response: Has been implemented The County has advocated for and participated in the
development of state level pension reform proposals through the California State Association
of Counties (CSA Q aimed at reducing pension costs. The County Administrator has chaired a
CSAC working group focused on pension reform CSAC is working with the legislature and
the Governor's Office to influence the outcome of the current pension reform debate in
California.
2. Put a moratorium on all enhancements to retirement benefits.
Response: Will not be implemented because it isnot reasonable,since it would prevent the
Board of Supervisors from engaging in "good faith negotiations"with employee
representatives as required by State law.
3. Negotiate to reduce and stabilize County retirement costs for new employees hired after June
309 2006, such as:
a. Establish a new DB Plan benefit tier that bases FAS on the employee's highest
consecutive thirty-six months' compensation.
Response: The County may not respond because to do so would prevent the Board of
Supervisors from engaging in "good faith negotiations"with employee representatives
as required by State law.
b. Establish a hybrid(part DB Plan and part DC Plan) approach to retirement benefits,
where approximately 75%of the benefit would come from the DB Plan and the
remainder would come from a new DC Plan. This approach would of necessity have
to comply with the 37 Act and many computational details would have to be worked
out. One way to accomplish this would be to roll back retirement benefits for new
employees to the levels that existed before the increases negotiated in 2002 and use all
of the County's savings to fund the DC plan. Any resulting reduction in the
employee's DB Plan contribution would also be contributed the DC Plan. To enhance
further his or her retirement program,the employee could contribute additional
amounts to the DC plan, as allowed by Internal Revenue Service regulations.
Response: Replacement of a defined benefits plan with a defined contribution plan will
not be implemented because it is not warranted or reasonable. The existing defined
benefits approach is a good one that has served the public well for decades. Recent
problems suggest a need to correct the cause of those problems, rather than "throwing
the baby out with the bath': In addition, it would not be feasible to implement this new
retirement plan in the absence of a statewide legislative 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.
C. Change the County's vacation policy to limit the amount of vacation carryover to no
more than the vacation earned in one year.
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County Response to Grand Jury Report No.0509 Page 7
Response: Will not be implemented because it is not warranted The maximum
amount of vacation included in the final average salary computation is limited to the
amount of vacation that can be accrued by an employee annually at the time of
retirement. Reference the County's response to Recommendation 4(a).
d. Limit the frequency of vacation sales to once in any twelve-month period,rather than
once every calendar year.
Response: The County may not respond because to do so would prevent the Board of
Supervisors from engaging in "good faith negotiations"with employee representatives
as required by State law.
The ability to sell vacation time is limited to management and unrepresented
employees. Approximately 20% of County management employees are represented by
labor unions, and their benefits are set forth in binding labor contracts.' No change in
the benefit structure for these represented managers—including the formulas used for
calculating benefits—may be made without meeting and conferring with their
representatives pursuant to the Meyers-Milias-Brown Act.
e. Eliminate the County's subsidy of the employee's contribution to the pension plan.
Response: Requires further analysis. This recommendation affects matters covered by
existing Memoranda of Understanding with the County's labor organizations and is,
thus,subject to the requirement to meet and confer in good faith with employee
representatives.
4. Negotiate a reduction in County retirement costs for current employees such as:
a. Change the County's vacation policy to limit the amount of vacation carryover to no
more than the vacation earned in one year.
Response: Requires further analysis.. The two-year accrual benefit recognizes that
there are periods of time when an employee's absence from the work site would be
detrimental to County operations. Limiting the vacation accrual to one year could
cause employees to forfeit earned vacation benefits and, thereby, be financially
penalized for being on the job. Even with the two-year maximum accrual limit,some
employees lose vacation benefits because they use less vacation than they are permitted
to accrue. To the extent this recommendation is aimed at controlling retirement costs,
its goal could be achieved by limiting the amount of vacation accrual that may be sold
or the frequency at which it may be sold. The County will continue to examine this
issue in pending labor negotiations.
1 Represented managers belong to SEIU Local 535,DSA,UCOA,AFSCME Local 512,and Local 1.
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County Response to Grand Jury Report No.0509 Page 8
b. Limit the frequency of vacation sales to once in any twelve-month period,rather than
once every calendar year.
Response: Will not be implemented with respect to current employees because it is not
reasonable. Benefits that affect final compensation for retirement purposes are
generally considered vested and cannot be legally revoked for current and past
employees.
C. Phase out the County's subsidy of the employee's contribution to the pension plan.
Response: Will not be implemented for current employees because it is not reasonable.
See the County's response to Recommendation No. 3(d) regarding new employees..
5. Negotiate flexibility in the MOUS to permit renegotiation with respect to changing retirement
benefits when statewide pension reform occurs. Either establish a specific trigger for
renegotiation if certain state laws are changed, or negotiate an MOU of short duration(for
example,two years) at least with respect to retirement benefits.
Response: Requires further analysis. The County Administrator will examine potential
reform measures to determine if it would be in the County's interest to negotiate a clause to re-
open negotiations under limited circumstances should pension reform occur. The Board of
Supervisors will consider the results of this examination in closed meeting sessions for this
purpose.
6. Adopt a written policy that prohibits granting benefits retroactively.
Response: The County may not respond because to do so would prevent the Board of
Supervisors from engaging in "good faith negotiations"with employee representatives as
required by State law.
7. Do not adopt the provisions of AB55 and SB274.
Response: The County does not intend to adopt the provisions of either bili Moreover, these
provisions are not the subject of current labor negotiations. If they were, the County would not
comment about it.
REQUIRED RESPONSES
Findings:
Contra Costa County Board of Supervisors: 1-17, 19-21.
Recommendations:
Contra Costa County Board of Supervisors: 1, 2, 3a-3e, 4a-4c, S-7.
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