1
So You Need to Reduce Retirement Costs: Contracting for
Reduced Retirement Benefits
CSMFO Annual Conference February 29, 2012
Lalo Perez, ASD Director/[email protected]
1
2
Discussion
• About Palo Alto• What caused the problem?• What mitigating actions has the City taken?• What resulted from the changes?• Lessons learned• Resources
City of Palo Alto Data
• 1,016 FTE• 7 Labor Groups – Including 4 safety groups • Binding arbitration for safety• Salary and benefits account for 64 percent of general
fund budget• Enterprise Funds include: electric, gas, water,
wastewater collection, wastewater treatment, refuse, storm drain, fiber and airport
• 9 Council Members elected at large
4
Citywide Pension Expense
Citywide Pension Expense
$6.1$4.8
$3.8$2.4
$15.6
$18.2$19.5
$20.8$22.9
$20.0 $19.5
$23.3$24.8
$28.9
$6.9
$28.5
$0
$5
$10
$15
$20
$25
$30
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Mil
lio
ns
5
Pension Contributions
Miscellaneous Plan Public Safety Plan
Fiscal Year EmployerEmployee
(City Paid) EmployerEmployee
(City Paid)
2009 17.005% SEIU, MGT - 6% 24.512% All groups - 9%
2010 17.063% SEIU, MGT - 6% 23.938% IAFF - 0%*
FCA, PMA, PAPOA - 9%
2011 17.555% MGT - 6% 24.695% IAFF - 0%
SEIU - 2.25% FCA, PMA, PAPOA - 9%
2012 21.725% MGT - 6% 30.125% IAFF - 0%**
SEIU - 2.25% FCA, PMA, PAPOA - 9%
2013 22.970% MGT - 6% 31.050% IAFF - 0%
SEIU - 2.25% FCA, PMA, PAPOA - 9%
2014 23.300% MGT - 6% 31.500% IAFF - 0%
SEIU - 2.25% FCA, PMA, PAPOA - 9%
* IAFF members began picking up 9% of these costs in exchange for a 9.9% salary increase. ** Employee pays
Citywide Health Care Expenses
$0
$5
$10
$15
$20
$25
$30
$35
Mill
ion
s
Active Employees Retirees Retiree Medical Liability
Growth based on CPI
7
Compensation Changes
• New miscellaneous employees 2%@60 – July 2010• Increased non-management employee share pension
contribution to 5.75% of 8%• Eliminated bonus plan for Managers• Switched from 100% paid medical premiums to 90%• 3%@55 for Safety Labor groups along with 3 year
average salary – Firefighters agreed• Proposing Safety Labor groups pay 9% employee
pension contribution share – Firefighters agreed
8
Impacts
• Experienced large number of retirements due to medical premium contribution requirement
• Limited impact to attracting new employees• Problems in re-hiring former employees: PERS Plan
will allow only two active formulas• New pension formula and 3 year average final
compensation only for new employees• Adjusted salary for some key positions• Some candidate pools have sufficient qualified
candidates but not many laterals with experience
9
Positions Recruited
• Hired City Attorney, Library Director, CIO, Accounting Manager, and Wastewater Quality Control Plant Operator
• Hired Planners, Asst. to City Manager, Sr. Financial Analyst and other positions from higher pension formula agencies
• Difficult recruits: Dispatchers, Lineperson and Power Engineers
• Challenging hires: Asst. Planning Director, Budget Manager and Sr. Technologist
10
Conclusion
• Required increased communication and explanations with all involved
• Prepare a Long Range Financial Forecast and recognize that savings are long-term
• Compensation plans need flexibility for unique needs• Ensure transparency throughout process: 2%@60
becomes 2.418%@63 – impacts are mostly to new employees
• Impacts of two-tier pension and medical premium cost sharing can be mitigated
11
Resources
• Link to Palo Alto website re: Labor Negotiations Update http://www.cityofpaloalto.org/knowzone/labor_negotiations/default.asp
• Power Point Presentation to Council on Last, Best, and Final Offer http://www.cityofpaloalto.org/civica/filebank/blobdload.asp?BlobID=17507
• Staff Report to Council Requesting Adoption of Imposition of Terms http://www.cityofpaloalto.org/civica/filebank/blobdload.asp?BlobID=17511