HomeMy WebLinkAboutMINUTES - 07132010 - SD.3RECOMMENDATION(S):
Acting as the Board of Supervisors of Contra Costa County, the Contra Costa County Fire
Protection District Board of Directors and Governing Board of the In-Home Supportive
Services Public Authority, APPROVE response to Civil Grand Jury Report No. 1010,
entitled "Pension Spiking: Who Really Gets Stuck?" in substantially the form set forth
below, and DIRECT the Clerk of the Board to forward response to the Superior Court no
later than July 17, 2010.
FISCAL IMPACT:
None.
BACKGROUND:
On May 18, 2010, the 2009/10 Civil Grand Jury filed the above-referenced report, which
was reviewed by the Board of Supervisors and subsequently referred to the County
Administrator who prepared the response set forth below that clearly specifies:
A. Whether a finding or recommendation is accepted or will be implemented;
B. If a recommendation is accepted, a statement as to who will be responsible for
APPROVE OTHER
RECOMMENDATION OF CNTY ADMINISTRATOR RECOMMENDATION OF BOARD COMMITTEE
Action of Board On: 07/13/2010 APPROVED AS RECOMMENDED OTHER
Clerks Notes:See Addendum
VOTE OF SUPERVISORS
AYE:John Gioia, District I Supervisor
Gayle B. Uilkema, District II
Supervisor
Mary N. Piepho, District III Supervisor
Susan A. Bonilla, District IV
Supervisor
Federal D. Glover, District V
Supervisor
Contact: Lisa Driscoll, County Finance
Director (925) 335-1023
I hereby certify that this is a true and correct copy of an action taken and entered on the
minutes of the Board of Supervisors on the date shown.
ATTESTED: July 13, 2010
David J. Twa, County Administrator and Clerk of the Board of Supervisors
By: June McHuen, Deputy
cc: Dorothy Sansoe, County Administrator's Office, Rich Seithel, County Administator's Office, Lisa Driscoll, County Finance Director, Chief Daryl Louder,
Contra Costa County Fire Proection District, Joe Valentine, Director/Employment and Human Services
SD. 3
To:Board of Supervisors
From:David Twa, County Administrator
Date:July 13, 2010
Contra
Costa
County
Subject:RESPONSE TO GRAND JURY REPORT NO. 1010, ENTITLED "Pension Spiking: Who Really Gets
Stuck"
implementation and by what 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.
BACKGROUND: (CONT'D)
BOARD OF SUPERVISORS RESPONSE TO
CIVIL GRAND JURY REPORT NO. 1010:
Pension Spiking: Who Really Gets Stuck?
FINDINGS
1: Increased pension costs directly reduce funds available for services. Higher pension
obligations also become a debt to future taxpayers of Contra Costa County.
Response: Agree unless employers reach agreements with recognized employee
organizations to pay the increased pension costs, in which case the higher pension
obligation would become a debt to employees rather than taxpayers.
2: CCCERA's employer members are not all fully knowledgeable about pension law and
the financial impact of their decisions on revenues and services.
Response: Agree.
3: Some employer board members rely heavily on input from staff. As members of the
same pension system, the staff may benefit from actions recommended to their employer.
Response: Agree.
4: Many of the pay elements and policies related to calculating final compensation are at
the discretion of the employer member.
Response: Partially disagree. The majority of the pay elements are collectively bargained
rather than discretionary and all of the policies related to calculating final compensation,
by State law, are the sole discretion of the CCCERA Retirement Board. The CCCERA
Board determines whether an item is includable in the calculation of Final Average Pay.
5: Current employer policies permitting pension spiking increase pension obligations,
which in turn will annually increase the amount of pension funds needed.
Response: Agree with clarification that the majority of "employer policies" that impact
pensions are actually bargained contracts with recognized employee organizations.
RECOMMENDATIONS
1: CCCERA, as the pension fund administrator, shall develop and make training
available annually on pension fund law and management to employer members.
Response: No response is required by CCCERA Employer Members.
2: Employer members shall adopt policies and procedures that require board
members/directors to annually attend pension fund training provided directly or indirectly
by CCCERA.
Response: Will not be implemented. CCCERA does not currently offer direct or indirect
pension training. However, the Board of Supervisors recently conducted a Pension
Workshop to educate the Board, employees, and the public regarding basic pension
information and issues and future educational workshops will be held on a regular basis.
3: Within 120 days of this report CCCERA and its employer members shall review the
list of current pay elements to determine which elements are required to be included by
law, which are optional and which by law are to be excluded. If a pay element is not
permitted by law, action shall be taken to comply with the law. Additionally, a review
shall be done when employee labor contracts or agreements are negotiated.
Response: Has been and will continue to be implemented. It is CCCERA's Board that has
the sole authority to review pay elements and determine whether they are required to be
included or excluded from the calculation of final average compensation. The County
reviews pay elements and their impact on pension costs when employee labor contracts
are negotiated.
4: Within 120 days CCCERA'S employer member shall evaluate the current and future
budget impact of pay elements. If employer and employee contributions plus projected
investment income do not cover pension costs, employer members shall take action to
eliminate or modify those pay elements.
Response: Has already been implemented. It is County policy to annually review all
pension costs and to adopt and budget rates reported by CCCERA to cover all projected
pension costs. Additionally, the County is actively working on a strategic plan for
pension reform.
CONSEQUENCE OF NEGATIVE ACTION:
CHILDREN'S IMPACT STATEMENT:
CLERK'S ADDENDUM
Speakers: Rollie Katz, Public Employees' Union Local One; Ralph Hoffman, resident
of Walnut Creek. APPROVED the response to Civil Grand Jury Report No. 1010
entitled “Pension Spiking: Who Really Gets Stuck?” as amended today: a) to include
language modifications to recommendation 3 response to insert “and will continue to
be” b) to include language modification to Finding 4 response to insert “collectively
bargained” c) to attach educational material provided in the County Administrator’s
workshops entitled “Pension 101".
ATTACHMENTS
Pension Spiking: Who Really Gets Stuck?
Pension 101
Contra Costa County 2009-2010 Grand Jury Report No1010
Grand Jury reports are posted at http://www.cc-courts.org/grandjury Page 1
Contact: Ron Tervelt
Foreperson
(925) 957-5638
Contra Costa County Grand Jury Report 1010
PENSION SPIKING: WHO REALLY GETS STUCK?
Contra Costa County Employees Retirement Association: Wake Up!
TO: Contra Costa County Board of Supervisors
Contra Costa County Employees’ Retirement Association
Bethel Island Municipal Improvement District
Byron, Brentwood, Knightsen Union Cemetery District
Central Contra Costa Sanitary District
Contra Costa Housing Authority
Contra Costa Mosquito and Vector Control District
Local Agency Formation Commission (LAFCO)
Rodeo Sanitary District
In-Home Supportive Services Authority (IHSS)
First 5 – Children & Families Commission
Contra Costa County Fire Protection District
East Contra Costa Fire Protection District
Moraga-Orinda Fire District
Rodeo-Hercules Fire Protection District
San Ramon Valley Fire District
SUMMARY
Increased public employee pension costs result in less revenue available for
public services and programs. Pension costs are increasing and will
continue to increase, partially due to what is commonly referred to as
“pension spiking.” Spiking is the act of including additional non-salary cash
amounts in the final compensation calculation. This calculation is used to
determine an individual’s retirement amount. Spiking can result in a
retiree’s pension that is greater than the employee’s highest salary.
Contra Costa County 2009-2010 Grand Jury Report No1010
Grand Jury reports are posted at http://www.cc-courts.org/grandjury Page 2
Not all Contra Costa County Employees Retirement Association (CCCERA)
employer members include pay elements that permit pension spiking.
CCCERA, its employer members and the California Legislature are looking
at the issue of pension costs. Many employer members are not well versed
in pension law, particularly pension spiking and its impact on expenditures
and services. Employer members must become more informed to
independently evaluate the impact of their pension decisions. This will
result in less dependency on staff that may have a vested interest in specific
pension outcomes.
Due to the complexity of pension policy and funding, CCCERA, its
employer members and all contract and benefits negotiators need to become
more knowledgeable about pension spiking. They must also understand
impacts on future budget and service delivery.
BACKGROUND
CCCERA administers the retirement plan for most County employees and
fifteen other entities in the County in accordance with the County
Employees Retirement Law of 1937. Periodically, the courts have issued
opinions regarding provisions of the Law. The CCCERA Board consists of:
Four members representing retirees and employees
Four members appointed by the Board of Supervisors
The County Treasurer/Tax Collector
The cost of the retirement plan is covered by employer and employee
contributions and CCCERA investment income. If these resources are not
sufficient to cover pension costs, it is ultimately the responsibility of the
taxpayer to pay the shortfall.
In February 2010, two bills were introduced in the California Legislature to
reform California public pensions and pension spiking.1 As of April 2010,
these bills have not been debated. If passed, these laws will take precedence
over current CCCERA policy.
1 Assembly Bill 1987 and Senate Bill 1425
Contra Costa County 2009-2010 Grand Jury Report No1010
Grand Jury reports are posted at http://www.cc-courts.org/grandjury Page 3
The charts below reflect that the County pension shortfall has been
increasing over the last several years and is projected to increase in the
future. Past pension shortfalls have been funded through the general budget.
In the past ten years, two previous Grand Jury reports made findings and
recommendations regarding public employee retirement issues.
The final compensation used to determine an individual’s retirement amount
is not limited to the employee’s annual salary. It may also include many
other cash benefits, such as:
Sale back of vacation leave
Uniform allowance
Educational incentive pay
Vehicle allowance
Others (see Appendix)
The compensation must have been earned by and payable to the employee
during the final compensation period. Within the law, employer members
have discretion over certain pay elements which may be included as part of
final compensation. For example, subject to contractual rights, some
employers cap the number of vacation hours that can be accrued or counted
towards final compensation. An employer providing a vehicle for official
use to an employee rather than providing a cash allowance is another
example.
Employer members, as well as a CCCERA retiree, stated during interviews
they did not fully comprehend the consequences of long-term pension
liabilities with respect to the approval of an employee agreement. Spiking
elements occur at the levels of rank-and-file, supervisor, manager and
executive. Collective bargaining negotiations which deal with retirement
benefits among other benefits, are held between managers and represented
employees. Managers, in turn, negotiate with their respective employer.
The current process provides for the opportunity of managers “to get what
the staff gets” in spiking benefits. This may provide a disincentive for
managers to be objective in negotiations with staff. Managers generally
have more facts and knowledge about compensation impacts than employer
board members. The salaries and benefits resulting from these negotiations
may have a ‘trickle up” effect in the determination of the salary and benefits
for managers.
Contra Costa County 2009-2010 Grand Jury Report No1010
Grand Jury reports are posted at http://www.cc-courts.org/grandjury Page 4
Current law (Lexin v. Superior Court 2010 Lexis 115.) holds that there is
neither a conflict-of-interest nor an ethical issue with managers negotiating
on self-benefiting issues. Propriety would dictate that employers adopt more
stringent procedures in salary and benefit negotiations. Employers cannot
adopt less stringent conflict-of-interest or ethics codes than required by law;
they can adopt more stringent codes.
METHODOLOGY
In September of 2009, the Grand Jury began looking into the issue of
pension spiking and its financial and service delivery impact. The Grand
Jury interviewed current and former employees of the Moraga Orinda Fire
District. Members of the Grand Jury attended several meetings of CCCERA
and the San Ramon Valley Protection District at which pension policies and
spiking were discussed. Opinions prepared by legal counsel for the San
Ramon Valley Fire Protection District and for CCCERA were reviewed. The
Grand Jury also received and analyzed County Administrator’s financial
report which included pension shortfalls.
FINDINGS:
1: Increased pension costs directly reduce funds available for services.
Higher pension obligations also become a debt to future taxpayers of Contra
Costa County.
2: CCCERA’s employer members are not all fully knowledgeable about
pension law and the financial impact of their decisions on revenues and
services.
3: Some employer board members rely heavily on input from staff. As
members of the same pension system, the staff may benefit from actions
recommended to their employer.
4: Many of the pay elements and policies related to calculating final
compensation are at the discretion of the employer member.
Contra Costa County 2009-2010 Grand Jury Report No1010
Grand Jury reports are posted at http://www.cc-courts.org/grandjury Page 5
5: Current employer policies permitting pension spiking increase pension
obligations, which in turn will annually increase the amount of pension
funds needed.
RECOMMENDATIONS:
1: CCCERA, as the pension fund administrator, shall develop and make
training available annually on pension fund law and management to
employer members.
2: Employer members shall adopt policies and procedures that require board
members/directors to annually attend pension fund training provided directly
or indirectly by CCCERA.
3: Within 120 days of this report CCCERA and its employer members shall review the list of
current pay elements to determine which elements are required to be included by law, which
are optional and which by law are to be excluded. If a pay element is not permitted by law,
action shall be taken to comply with the law. Additionally, a review shall be done when
employee labor contracts or agreements are negotiated.
4: Within 120 days CCCERA’s employer members shall evaluate the current
and future budget impact of pay elements. If employer and employee
contributions plus projected investment income do not cover pension costs,
employer members shall take action to eliminate or modify those pay
elements.
CONCLUSION:
The Grand Jury recognizes that CCCERA and employer members must
consider the legal, administrative, budgetary and collective bargaining
implications of proposed changes. However, unless action is taken to contain
rising pension costs, increasingly more resources will go to cover pension
costs and less for essential services. The first step is to assure that all
decision makers are fully knowledgeable about pension laws and policies.
CCCERA and its employer members must make decisions that are best for
the County as a whole, rather than individual groups. To do otherwise
ultimately dumps the staggering overruns on the back of the taxpayer, rather
than with the employer/employee members who receive the benefit.
Contra Costa County 2009-2010 Grand Jury Report No1010
Grand Jury reports are posted at http://www.cc-courts.org/grandjury Page 6
REQUIRED RESPONSES:
Findings
CCCERA 1 through 5
CCCERA Employer Members 1 through 5
Recommendations
CCCERA 1 through 4
CCCERA Employer Members 2 through 4
Contra Costa County 2009-2010 Grand Jury Report No1010
Grand Jury reports are posted at http://www.cc-courts.org/grandjury Page 7
Appendix
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Pension 101Contra Costa CountyMay 18, 2010
Contra Costa County – May 18, 2010 – Page 2TopicsPension BenefitsContra Costa County PlansCalPERS and ‘37 Act Plans Defined Benefit and Defined Contribution PlansPension Issues in Contra Costa CountyPublic Managers’ Association ProposalPending LegislationQuestions and Answers
Pension Benefits
Contra Costa County – May 18, 2010 – Page 4Contra Costa CountyCounty of Contra Costa employees are members of the Contra Costa County Employees’ Retirement Association (CCCERA)CCCERA operates under the County Employees Retirement Law of 1937 (Government Code, Title 3, Division 4, Part 3, Charter 3 – as amended) –commonly referred to as the ’37 Act
Contra Costa County – May 18, 2010 – Page 5What Are The Elements Of The Pension Benefit?A pension amount is based on a statutory formula The employee’s Final Average Salary multiplied by the employee’s years of service multiplied by the statutory percentage factor (e.g., 2% at 55 (general members) or 3% at 50 (safety))The pension benefit also includes possible annual cost of living adjustments (COLA) to the pension Generally, Retirees may receive up to a 3 % COLA
Contra Costa County – May 18, 2010 – Page 6How Can Changes Be Made To The Pension Benefit?Employees have rights to their pension formula and pension COLA The pension benefit can be modified for current employees if:The modification bears a material relation to the theory of the pension system and its successful operation; andChanges in the pension plan that result in disadvantage to employees are accompanied by a comparable new advantage for the employee
Contra Costa County – May 18, 2010 – Page 7What about new hires?The pension benefit can be changed for new employees, for example:The COLA could be reduced from a maximum 3% COLA to a maximum 2% COLA; and/orFinal Average Salary could be calculated over a 36 month period instead of a 12 month period; and/orA different statutory percentage factor could be used, e.g. from 3% at 50 to 3% at 55 (safety members) or from 2% at 55 to 2% at 60 (general members)The conversion of sick leave to service credit can be eliminatedSome changes may require legislation to modify or add tiers to the ’37 Act
Contra Costa County – May 18, 2010 – Page 8What is included in Final Average Salary?With the exception of Deputy Sheriffs’ Safety Tier C, a 12 consecutive month period is used to calculate Final Average SalaryEmployee selects the 12 consecutive month period--usually the last 12 months of employmentTier II and disability for Tier III use 36 monthsUnder CCCERA’s policy “Determining Which Pay Items Are Compensation For Retirement Purposes,”Final Average Salary includes:
Contra Costa County – May 18, 2010 – Page 9What is included in Final Average Salary? (continued)For County Employees who become members of CCCERA priorto January 1, 2011:SalaryCash payments for services performed i.e., longevity pay, bilingual pay, standby pay, holiday pay, and the like.Cash payments for sale of vacation accruals during final compensation period (up to 2/3 of the annual accrual)Cash payment for cash-out of no more than one-year’s vacation and personal holiday accruals upon separation from serviceGenerally, overtime is not includable in the Final Average Salary calculation (exception is regularly scheduled overtime, which is retirement compensable, scheduled overtime is rarely used in Contra Costa County – last time was EHSD in 2008)
Contra Costa County – May 18, 2010 – Page 10What is included in Final Average Salary? (continued)For County Employees who become members of CCCERA afterJanuary 1, 2011:Same as other employees, except cash payments for cash-out of vacation and personal holiday accruals at separation from service will no longer be includable in final average salary
Contra Costa County – May 18, 2010 – Page 11Final Compensation Example of Vacation Sale using 30 Year Employee*Member Prior to 1/2011May sell:93 hours during final 12 monthsAnother 93 hours during final 12 months280 hours at terminationTotal of 466 hoursMember After 1/2011May sell:93 hours during final 12 monthsAnother 93 hours during final 12 months0 hours at terminationTotal of 186 hours* Eligible to sell vacation during employment
Contra Costa County – May 18, 2010 – Page 12Final Compensation Example of Vacation Sale using 30 Year Employee*Member Prior to 1/2011May sell:280 hours at terminationTotal of 280 hoursMember after 1/2011May sell:0 hours at terminationTotal of 0 hours* Not eligible to sell vacation during employment
Contra Costa County – May 18, 2010 – Page 13Who Determines What Is Included In Final Average Salary?The Board of Supervisors and the Represented Employee Organizations bargain about the establishment and scope of various discretionary items of compensation, such as bilingual pay By State law, when an item of compensation is established, the CCCERA Retirement Board has the sole discretion to determine whether that item is includable in the calculation of Final Average Salary
Contra Costa County – May 18, 2010 – Page 14How Does The COLA Work?Most Retirees are eligible for annual Cost of Living Adjustments to their pension benefits not to exceed 3% per yearTier 2 Retirees and disability Retirees in Tier III are eligible for COLAs not to exceed 4% per yearDeputy Sheriff Safety Tier C Retirees are eligible for COLAs not to exceed 2% per yearPurpose of the COLA is to preserve the economic purchasing power of a retiree’s pension in light of changing market conditions
Contra Costa County – May 18, 2010 – Page 15How Does The COLA Work? (continued)Subject to the applicable maximum cap, the CCCERA Retirement Board determines what percentage COLA to award each year, if any By State law, the COLA is tied to changes in the Consumer Price Index (CPI) for the San Francisco-Oakland-San Jose Area
Contra Costa County – May 18, 2010 – Page 16How Does The COLA Work? (continued)The COLA can be positive or negative – if negative, the decreased benefit payment can never drop below the original amount calculated at retirementCCCERA’s actuaries compare the December CPI for the past two years, compute the resulting percentage change in CPI, and recommend a COLA adjustment amount. Depending on the change in CPI, this amount could be the maximum possible COLA, or some lesser amount. COLAs may also be banked and used in future years when the change in CPI is lower than the maximum capOnce awarded, the amount of the COLA remains part of the retiree’s ongoing pension benefit
Contra Costa County – May 18, 2010 – Page 17How Does Reciprocity Work?CCCERA reciprocity is only for other California systems. CCCERA determines whether the employee is eligible for reciprocityOverlapping service is not allowed, an employee must terminate in one system before starting employment with anotherReciprocity encourages career public service by allowing an employee to link together retirement benefit credits from one public employer to another public employerEmployee’s contribution rate is based on age of entry into the first reciprocal retirement system. This results in reduced contribution rates for the employee and the County
Contra Costa County – May 18, 2010 – Page 18How Does Reciprocity Work? (continued)Service credits earned in the prior employer’s reciprocal retirement system count toward vesting and retirement eligibility in CCCERAEmployee receives separate pension payments from CCCERA and from the former employer’s retirement systemWhen an employee retires, the highest Final Average Salary from eitheremployer is used by both CCCERA and the former employer’s retirement system to calculate the pension benefit CCCERA may have to pay benefits based on a Final Average Salary that is greater than the employee would have had if they remained a County employee
Contra Costa County PlansSummary of Major Pension Plan Provisions
General Membership Plans
Contra Costa County – May 18, 2010 – Page 21What Plans are General Members in?Tier 1 Members hired before August 1, 1980Retirement Benefit - 2% at age 55Final Average Salary – 12 consecutive monthsCost of Living Adjustment Maximum Benefit – 3%Tier 2 Members hired after August 1, 1980 and eliminated for active members’ future service in October 2002 (CNA members – after January, 2005)Retirement Benefit – 1.13% at age 55Final Average Salary – 36 consecutive monthsCost of Living Adjustment Maximum Benefit – 4%Tier 3 Members hired after September 30, 2002Retirement Benefit – 2% at age 55Final Average Salary – 12 consecutive monthsCost of Living Adjustment Maximum Benefit – 3%
Contra Costa County – May 18, 2010 – Page 22What are the Major General Tier Pension Plan Provisions?Generally, members are eligible to receive a benefit after ten or more years of eligible service The “2% at 55” retirement age factor is used to calculate the benefit between the ages of 55 and 62.25For Tier I, the factor reverts to the original Tier 1, non-enhanced maximum factor of 2.61% at age 65For Tier III, the maximum factor of 2.42% is reached at age 65
Contra Costa County – May 18, 2010 – Page 23Who Participates in General Tier I?International Association of Firefighters Local 1230 (16)Service Employees International Union Local 1021 (57)Unrepresented Management (49)American Federation of State, County & Municipal Employees Local 512 (29)Public Employees Union Local 1 (77)American Federation of Labor and Congress of Industrial Organization Local 21 (86)Crockett/Carquinez FPD (1)Unrepresented Non-Management (2)American Federation of State, County and Municipal Employees Local 2700 (84)Physicians and Dentists of Contra Costa Association (4)Public Defenders Association (3)California Nurses Association (8)Deputy District Attorney’s Association (1)Deputy Sheriff’s Association Non-Sworn Rank & File (7)Elected Officials (2)
Contra Costa County – May 18, 2010 – Page 24Who Participates in General Tier III?Service Employees International Union Local 1021 (676)Unrepresented Management (229)American Federation of State, County & Municipal Employees Local 512 (210)Public Employees Union Local 1 (1,944)American Federation of Labor and Congress of Industrial Organization Local 21 (693)Crockett/Carquinez FPD (1)Unrepresented Non-Management (34)American Federation of State, County and Municipal Employees Local 2700 (1,369)Physicians and Dentists of Contra Costa Association (215)Elected Officials (7)Public Defenders Association (56)California Nurses Association (477)Deputy District Attorney’s Association (79)Deputy Sheriff’s Association Non-Sworn Rank & File (133)Western Council of Engineers (21)
Safety Membership Plans
Contra Costa County – May 18, 2010 – Page 26What Plans are Safety Members in?Tier A (most safety employees)Retirement Benefit – 3% at age 50Final Average Salary – 12 consecutive monthsCost of Living Adjustment Maximum – 3%Tier C (deputy sheriffs hired after December 31, 2006)Retirement Benefit – 3% at age 50Final Average Salary – 36 consecutive monthsCost of Living Adjustment Maximum – 2%
Contra Costa County – May 18, 2010 – Page 27Summary of Major Safety Pension Plan ProvisionsTier A – members with 10 or more years of continuing service who retire on or after age 50 or members with 20 years of service regardless of age will receive pensions calculated with the enhanced benefit factor (3% at 50)Tier C – Deputy Sheriffs members hired on or after January 1, 2007. This tier is scheduled to “sunset” for new hires in 2012
Contra Costa County – May 18, 2010 – Page 28Who Participates in Safety Tier A?American Fed of Labor and Congress of Industrial Organization Local 21 (7)American Fed of State, County & Municipal Employees Local 512 (22)Crockett/Carquinez FPD (19)East Contra Costa County FPD Management (4)International Association of Firefighters Local 1230 (302)Probation Peace Officers Association (219)Public Employees Union Local 1 (35)Service Employees International Union Local 1021 (50)United Chief Officers Association (11)Unrepresented Management (8)Unrepresented Non-Management (4)Unrepresented Uniformed Fire Safety Management (4)
Contra Costa County – May 18, 2010 – Page 29Who Participates in Safety Tier A (continued)?Unrepresented District Attorney Investigators Management (3)District Attorney Investigators Association (12)Unrepresented Sheriff’s Sworn Executive Management (4)Sheriff (1)Deputy Sheriff’s Association Sworn Management (40)Deputy Sheriff’s Association Sworn Rank & File (495)Additionally – 80 in Tier CTotal in Tier A – 1,195Total in Tier C – 80
CalPERS and ‘37 Act Plans
Contra Costa County – May 18, 2010 – Page 31What are the Similarities and Differences?Most differences are actually more a result of bargaining than differences in plan design allowances and/or restrictions in PERS or ’37 Act PlansPERS COLAs do not begin until the 2ndyear of RetirementIn PERS Retiree Health Benefits are providedPERS limits the retirement benefit to 90% of final average salary
Defined Benefit & Defined Contribution Plans
Contra Costa County – May 18, 2010 – Page 33What is a Defined Benefit Plan?An employer sponsored retirement planRetiree receives a set amount in benefits each month, once receipt of benefits is begunBenefits are determined on the basis of a formula using factors such as salary history, duration of employment and ageBenefits are not dependent on the performance of the investment portfolio in which contributions are investedInvestment risk and portfolio management are controlled by either the employer or the company that manages the planThere are restrictions on when or how employees can withdraw funds without incurring penalties
Contra Costa County – May 18, 2010 – Page 34What is a Defined Contribution Plan?Employee and/or employer make a set dollar amount contribution each monthBenefits are not pre-determined Benefit amount is dependent upon how well the contributions are invested before retiree starts to make withdrawalsInvestment decisions may be directed by the individual employee in addition to the employer from the offerings available to them There are restrictions on when and how the employee can withdraw the funds without penalties
Contra Costa County – May 18, 2010 – Page 35What are the Advantages of Defined Benefit Retirement Plans?Funding structure allows for long-term financingGuarantees to provide some income replacement in retirement for any vested retiree, regardless of age at the time of entering employmentBenefit levels are guaranteed by the PlanBecause benefits are guaranteed, they become an effective tool to recruit and retain qualified employees and they are designed to ensure that retirees don’t outlive retirement assets
Contra Costa County – May 18, 2010 – Page 36What are the Advantages of Defined Benefit Retirement Plans? (continued)Defined Benefit plans are proven to add more to the retirement savings of especially lower and middle income earners than Defined Contribution plansBecause the funds are managed in common by the employer or a management firm, research shows that, they outperform what most individual investors earn. (In general, individual investors underperform the market by 3.4% eachyear)
Contra Costa County – May 18, 2010 – Page 37What are the Advantages of Defined Benefit Retirement Plans? (continued)Contributions can be protected from the full impact of negative market fluctuations by using smoothing techniques which also allow for investment gain offsets and the use of funding horizons that correlate with the length of employee careersRetirees are able to count on a continual/normal flow of income, even in the most challenging of financial timesMaintenance of income means that retirees can continue to invest in the local economy, even in difficult financial times
Pension Issues in Contra Costa
Contra Costa County – May 18, 2010 – Page 39What is the Condition of the County’s Pension System?PENSION CRISIS Due to Stock Market losses, County’s Pension Obligation will increase dramatically in next five - seven yearsWill require an additional $59 Million contribution each yearafter 2015.
Contra Costa County – May 18, 2010 – Page 40What are the Annual Impacts?Annual POB Annual Increase1IncreaseAccumulated7/1/2010 $ 7,536,047 $ 3,414,767 $ 10,950,8147/1/2011 $13,333,007 $ 3,712,475 $ 27,996,2967/1/2012 $17,390,878 $ 4,677,251 $ 50,064,4257/1/2013 $18,550,270 $ 462,032 $ 69,076,7277/1/20142$17,970,574 ($32,991,674) $ 54,055,6277/1/2015 $ 3,478,176 $ 1,504,633 $ 59,038,4361Figures represent projections based upon annually earning at least the Assumed Investment Rate of 7.75%2Due to one Pension Obligation Bond pay off that will occur in July, 2014 this will reduce the total annual accumulated to $59,038,436.
Contra Costa County – May 18, 2010 – Page 41Retirement Expense History & 5 Year Projection$218$206$220$237$259$278$263$268$215$175$195$215$235$255$275$2952007-08Actual2008-09Actual2009-10 Proj't2010-11Recom'd2011-12Proj't2012-13 2013-14 2014-15 2015-16*Projection anticipates achieving the CCCERA Assumed Investment Rate each year.
Contra Costa County – May 18, 2010 – Page 42In Contra Costa, for every dollar being spent on salary…… we spend 40 cents on pension… and ANOTHER 41 cents on other benefits
Contra Costa County – May 18, 2010 – Page 43How are costs shared between the County and the employee? Generally, these sharing ratios are collectively bargainedActual amounts paid vary from employee to employee because contribution rates are based upon employee’s age at initial CCCERA membershipThe following slides summarize current sharing arrangements for FY 2010/11 for an employee who joined CCCERA at age 28
Contra Costa County – May 18, 2010 – Page 44General MembershipTier IEmployer RateEmployee RateTotalRetirementRateEmployer Share of Total Ret RateEmployee Share of TotalRet RateBasic 16.910% 2.870% 19.780% 38.310% 6.502%50% Subv of EE Cost 2.870% 2.870% 6.502% 0.000%COLA 6.700% 3.420% 10.120% 15.179% 7.748%POB 11.370% 11.370% 25.759% 0.000%37.850% 6.290% 44.140%85.750% 14.250%Tier IIIEmployer RateEmployee RateTotalRetirementRateEmployer Share of Total Ret RateEmployee Share of TotalRet RateBasic 15.320% 2.870% 18.190% 40.637% 7.613%50% Subv of EE Cost 2.870% 2.870% 7.613% 0.000%COLA 6.020% 2.790% 8.810% 15.968% 7.400%POB 7.830% 7.830% 20.769% 0.000%32.040% 5.660% 37.700%84.987% 15.013%
Contra Costa County – May 18, 2010 – Page 45Sheriff Safety MembershipTier CEmployer RateEmployee RateTotalRetirementRateEmployer Share of Total Ret RateEmployee Share of TotalRet RateBasic 26.820% 4.165% 30.985% 37.437% 5.814%50% Subv of EE Cost 4.165% 4.165% 5.814% 0.000%COLA 9.900% 3.410% 13.310% 13.819% 4.760%EE Subv of ER Cost -2.100% 2.100% 0.000% -2.931% 2.931%POB 23.180% 23.180% 32.356% 0.000%61.965% 9.675% 71.640%86.495% 13.505%Tier AEmployer RateEmployee RateTotalRetirementRateEmployer Share of Total Ret RateEmployee Share of TotalRet RateBasic 29.860% 4.370% 34.230% 36.719% 5.374%50% Subv of EE Cost 4.370% 4.370% 5.374% 0.000%COLA 12.940% 6.600% 19.540% 15.912% 8.116%EE Subv of ER Cost -3.000% 3.000% 0.000% -3.689% 3.689%POB 23.180% 0.000% 23.180% 28.505% 0.000%67.350% 13.970% 81.320%82.821% 17.179%
Contra Costa County – May 18, 2010 – Page 46Non-Sheriff Safety MembershipTier A (Other)Employer RateEmployee RateTotalRetirementRateEmployer Share of Total Ret RateEmployee Share of TotalRet RateBasic 29.860% 4.370% 34.230% 36.719% 5.374%50% Subv of EE Cost 4.370% 4.370% 5.374% 0.000%COLA 12.940% 6.600% 19.540% 15.912% 8.116%EE Subv of ER Cost -9.000% 9.000% 0.000% -11.067% 11.067%POB 23.180% 0.000% 23.180% 28.505% 0.000%61.350% 19.970% 81.320%75.443% 24.557%Note: CCCFPD POB is paid from tax and not as a cost of compensationTier A (CCCFPD)Employer RateEmployee RateTotalRetirementRateEmployer Share of Total Ret RateEmployee Share of TotalRet RateBasic 19.180% 8.740% 27.920% 47.160% 21.490%50% Subv of EE Cost 0.000% 0.000% 0.000% 0.000%COLA 6.150% 6.600% 12.750% 15.122% 16.228%EE Subv of ER Cost -9.000% 9.000% 0.000% -22.129% 22.129%POB (note)16.330% 24.340% 40.670%40.153% 59.847%
Public Managers’Association Proposal
Contra Costa County – May 18, 2010 – Page 48What does the Proposal Include?General for new hires2% at 60Escalating to 2.418 % at age 63 or older36 month final averagingSafety for new hires2% at 50Escalating to 2.7% at age 55 or older36 month final averagingCap retirement benefits for all groups at 65% to 75% percent of final salary for new hiresAllow existing employees to be enrolled in negotiated new tier plans on a prospective basis
Pending Legislation
Contra Costa County – May 18, 2010 – Page 50SB 919 (Hollingsworth): State Employee Benefits –As Amended April 21, 2010(hearing 5/11)Age. The vast majority of state workers can retire now at 62. The bill would increase that age to 65 for new hires. CHP officers, firefighters, correctional officers and other peace officers would have to wait until 57, up from the current retirement age of 50 Percentage formulas.Police, safety officers and firefighters currently get 3 percent of their single highest year, with a pension cap at 90 percent of their highest annual wage. SB 919 would cut that to 2.7 percent. So right now, a CHP officer at full retirement age with 20 years of service, making $100,000 yearly, gets a $60,000 annual pension. For new hires under the Hollingsworth plan, it would be $54,000 Retiree health.State workers are fully vested in their retiree health plans after 20 years. SB 919 would make it 25 years for new employees and cut the state's contribution to those benefits by 15 percent
Contra Costa County – May 18, 2010 – Page 51AB 1987 (Ma): Public retirement: final compensation: computation: retirees.- As Amended April 29, 2010 (hearing scheduled 5/12)This bill places new standards and limitations on public retirement systems in California with respect to final compensation calculations, ongoing audits and penalties for non-compliance, and prohibitions against retirees from immediately returning to work on a part time or contract basis. Specifically, the bill: Requires each retirement system to establish accountability provisions for participating employers that include an ongoing audit process and penalty provisions for noncompliance Excludes cash conversions of accrued employee benefits from being included in retirement calculations Prohibits final settlement or termination pay from being included in retirement calculations Prohibits a retiree from returning to work as a retired annuitant or as a contract employee for a period of 180 days after retirement. This requirement applies to anyone retiring on and after January 1, 2011
Contra Costa County – May 18, 2010 – Page 52AB 1987 (Ma): Public retirement: final compensation: computation: retirees.- As Amended April 15, 2010 (hearing scheduled 5/12)Limits the increases in compensation that can be used in retirement calculations by members during their final three years precedingretirement to the average increases in compensation received by similarly situated employees in the same or closely comparable group. Promotions or routine merit increases would not be affected by this provision Authorizes a retirement system to not include in retirement calculations any compensation they determine was paid for the principal purpose of enhancing a member's retirement benefit Specifies that this bill will not become operative unless SB 1425 (Simitian) of this year is also enactedCSAC has recommended opposing this bill unless it is amended
Contra Costa County – May 18, 2010 – Page 53SB 1425 (Simitian and Correa): Public Retirement: Final Compensation – As Amended April 5, 2010SB 1425 adds requirements to laws governing the Public Employees' Retirement System (CalPERS), the State Teachers' Retirement System (CalSTRS), and independent public retirement systems to: clarify and define which elements may and may not be included in final compensation for the purpose of calculating retirement benefits,require that increases to employee compensation during the finalcompensation period be consistent with increases paid to other employees in the same or similar occupational groups or classes, require the boards of retirement systems to audit employer compliance with final compensation reporting requirements and allow them to levy monetary penalties or fees for non-compliance, and prohibit, for 180 days after the date of retirement, any public annuitant who retires on or after January 1, 2011, from returning to work as a part-time, paid employee; contracting employee; or employee of a third party contractor
Contra Costa County – May 18, 2010 – Page 54SB 1425 (Simitian and Correa): Public Retirement: Final Compensation – As Amended April 5, 2010The California State Association of Counties (CSAC) states that "a six-month wait for every retiree is overly broad and is an inappropriate interference on a local public employer's ability to choose the best candidate for a job and to efficiently and effectively manage resources." CSAC also believes that a better way to address pension spiking abuses would be to restrict final compensation earnable to base salary or wage compensation onlyPassed Senate Appropriations May 10, 2010CSAC has recommended opposing this bill unless it is amended.
Questions and AnswersContra Costa County Employees’ Retirement Association web-site can be accessed at:www.cccera.org