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HomeMy WebLinkAboutMINUTES - 03082005 - C.55 Contra TO: BOARD OF SUPERVISORS '''- °� FROM: JOHN SWEETEN, County Administrator0 . Costa left DATE: MARCH 8, 2005 COUK� _ ounty '4 SUBJECT: FOLLOW-UP INFORMATION RELATED 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 RECOMMENDED ACTION: APPROVE and AUTHORIZE the County Administrator to send the attached memorandum to the Contra Costa County Grand Jury providing follow-up information to the County's response to Grand Jury Report No. 0409, entitled "Budget Woes and Layoffs: The Contributions of Pension Improvements". BACKGROUND: The 2003/2004 Grand Jury filed the above-referenced report on June 10, 2004. In the County's response, issued on September 21, 2004, the County Administrator agreed to provide additional information related to compensation factors contributing to retirement costs: Grand Jury Recommendation: The BOS review, at the earliest practicable time, all pay provisions and other arrangements which can be used by an employee to spike final compensation at retirement. Following the review, the BOS eliminate those pay provisions and arrangements (e.g., vacation sell-back), which exceed the requirements of the County Employee Retirement Law of 1937 and Ventura/Paulson. County 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. The attached memorandum transmitting the requisite information is submitted for the Board's approval. CONTINUED ON ATTACHMENT: [YES SIGNATURE: OlIkECOMMENDATION OF COUNTY ADMINISTRATOR ❑ RECOMM ATION OF BOARD COMMITTEE EPAPPROVE ❑ OTHER r SIGNATURE(S): ACTION OF Bc4 DON p 9 A�5�v C<0006 APPROVED AS RECOMMENDED OTHER ❑ VOTE OF SUPERVISORS: I HEREBY CERTIFY THAT THIS IS A TRUE AND CORRECT COPY OF AN ACTION TAKEN AND UNANIMOUS(ABSENT ENTERED ON THE MINUTES OF THE BOARD OF SUPERVISORS ON THE DATE SHOWN. AYES: NOES: ABSENT: ABSTAIN: ATTESTED: MARCH 8,2005 Contact: JOHN SWEETEN (925)335-1086 JOHN SWEETEN,CLERK OF THE BOARD OF cc: COUNTY ADMNISTRATOR SUPERVISORS AND COUNTY ADMINISTRATOR HUMAN RESOURCES DIRECTOR RETIREMENT ADMINISTRATOR By: eputy OFFICE OF THE CouNTY ADMINISTRATOR MEMORANDUM DATE: March 8, 2005 TO: Civil Grand Jury ATTN: Antonio Medrano Foreman FROM: John Sweeten County Administrator SUBJECT: "PENSION SPIKING" Background In its Report No. 0409, entitled "Budget Woes and Layoffs: The Contributions of Pension Improvements,"the Grand Jury recommended that the Board of Supervisors review pay provisions and arrangements (e.g.,vacation sell-back)that may be used to "spike" final compensation upon retirement, and eliminate those that exceed the requirements of the County Employee Retirement Law of 1937, as well as the Ventura court decision and the Paulson settlement. In its response to this recommendation,the Board of Supervisors indicated that the County Administrator would undertake a study of pay provisions and other arrangements that can be used to inflate an employee's final compensation upon retirement, and make his findings and recommendations, if any, available to the Grand Jury upon request. That study having been completed, and a request from the Grand Jury having been made, the following information is provided. Findings 1. The County Administrator's Office (CAO) has conducted a review of compensation factors that are subject to inclusion in an employee's "final compensation"used for calculating retirement benefits. The CAO finds that sale of vacation time more than once in a twelve-month period is the only factor that could be construed as inflating or "spiking"retirement benefits. The CAO understands the term"spiking"to refer to the inflation of an employee's "final compensation" used for calculating retirement benefits above that employee's typical normal compensation'. 2. Employees eligible for sale of vacation time are allowed to conduct such sales once in a calendar year. Two such sales occurring in two separate calendar years, but both within twelve months of an employee's retirement date, are both counted in that employee's "final compensation" for purposes of calculating retirement benefits. In such a case, the final twelve months of compensation used for calculating retirement benefits would be greater than the employee's typical twelve months of compensation. The CAO is not aware of any other compensation factors that have this effect on an employee's"final compensation"used for calculating retirement benefits. 3. As a result of the Ventura Supreme Court case, proceeds from the sale of vacation are considered compensation for purposes of calculating retirement benefits for employee members of the County Employees Retirement System. 4. Sale of vacation is restricted to management employees. This management benefit has been in existence for 30 years. The benefit is predicated on the fact that there are frequently periods of time when a manager's absence from the work site would be detrimental to County operations. Vacation sell-back was intended to make the manager "whole" for the loss of vacation time. Elimination of vacation sales would result in increased use of vacation time by managers, and would increase the risk of managers being absent from the job site during critical periods. The result would be the absence of appropriate managerial oversight of County operations. The only alternative would be to deny managers their earned vacation time and not provide compensation in return. This alternative may open the County to legal liability and is not recommended. 5. At the request of the County Administrator,the Auditor-Controller recently completed an analysis of vacation sales in the County. The Auditor-Controller reported that there are 1,550 managers in the County eligible to sell back vacation time. Approximately 40 percent of those eligible managers, or approximately 620, take advantage of this eligibility in a year. This represents about 7 percent of all County employees. Of the 78 managers retiring October 2002 through September 2003, 65 sold vacation. Of those that sold vacation, 54 opted to sell twice within the final twelve months prior to retirement. 6. Not all managers are unrepresented. Approximately 310 managers (20%) in several different departments are represented employees, and their benefits are set forth in binding labor contracts 3. No change to 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. ' Under the County Employees Retirement Law of 1937,retirement benefits are determined based on several factors,including an employee's"final compensation"at retirement. In Contra Costa County,that compensation is measured over a twelve-month period. 2 CERS was created by the County Employees Retirement Act of 1937,and applies to 20 of the 58 counties in California. 3 Represented managers belong to SEIU Local 535,DSA,UCOA,AFSCME local 512 and Local One. CADocuments and SettingsVSwEE\MY DOCUMENWRetiremenAGrand Jury-Pension Spiking 3-1-05.doc 7. Several parties—the Governor,the Howard Jarvis Taxpayers Association, and Assembly Member Keith Richman, among others—are proposing major changes to the structure of public employee pension systems. These parties have acknowledged the difficulty in changing the rules for calculating pension benefits for current employees by proposing that the changes they offer would apply only prospectively to employees hired after June 30, 2007. 8. In conjunction with the California State Association of Counties (CSAC),the County has participated in an effort to address a number of perceived shortcomings in the current structure of public employee pensions in California. This effort has focused on the cost of California's public pension systems,, the volatility of that cost, and the way that the rules of these systems have created the perception of abuse in the minds of the public. Among the options that have been approved in draft by the CSAC Board of Directors is a requirement to use the average of the final 36 months of compensation for calculation of retirement benefits, and the elimination of the statutory basis for the Ventura court case. The first of these options would mitigate the vacation sell-back issue of concern to the Grand Jury, and the second would eliminate it. As is proposed by the other major reformers, these options have been put forward as changes that would apply prospectively to employees hired after June 30, 2007. Recommendations It is the intention of the County Administrator to provide the Board of Supervisors with multiple options for dealing with this and other pay/benefit matters in preparation for the Board's provision of direction to its labor negotiators for upcoming contract negotiations. cc: County Counsel Labor Relations CADocurnents and SettingsVSWEE\MY DOCUMENTS\Retirement\Grand Jury-Pension Spiking 3-1-05.doc