Pension Part II - Final

8/9/2019 Pension Part II - Final

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CityCouncilStudySession

EmployeePensions

PartIIApril20,2010

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Outline

ReviewofCalPERS

OtherRetirementBenefitsandCostsPARSPre-1945PoliceandFirePensionPlanPensionObligationBonds

CurrentPensionCostIssues

OptionsforPensionReform

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ReviewofCitysPERSBenefits

2%2%EmployeeAmountPaid

19.830%25.007%Total%ofpayrollsenttoPERS

11.830%*16.007%*EmployerShare

$21,997$49,205AveragePension

3,5731,458Retirees

$45.6million$34.8millionFY10TotalCosts(AllFunds)

6%7%EmployerPickUpofEmployee

Share(EPMC)

8%9%EmployeeShare

2.5%@55(after10/1/06)

2.7%@55(before10/1/06)

3%@50Formula

Miscellaneousafety

* EmployerShareprojectedtoincreaseto20.7%forSafetyand14.5%forMiscellaneousinFY12*EmployeeandEmployerShareisbasedonapercentageoftheCityspayroll

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OtherRetirement

BenefitsandCosts

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PublicAgencyRetirementSystem(PARS) Retirement

planforSpecialStatusContractors*andSeasonalandTemporaryemployees

Formula(minimumageof65):

PARSRetirementBenefits

$47.401.5%$6325.0

LifetimeMonthlyBenefit

=1.5%xHighest36ConsecutiveMonthsSalaryAverage

xYearsofService

* Closedplan nonewSpecialStatusContractorseligiblefortheplan

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Pre-1945PoliceandFirePensionPlan

TheCityadministersaPoliceandFirePensionProgramunder

CityCharterSection187foremployeeshiredbefore1945andretiredwith20yearsofservice

Asof12/30/2009,therewere67participantsintheprogramwithagesrangingfrom63to103

54weresurvivingspouses

13wereremainingemployeeparticipants

Survivingspousereceives50%ofemployeessalary.Ofthe13

remainingemployeeparticipants,8havespouseswhowillqualifyforbenefitsupontheemployeesdeath.

TotalFY10costsinthisPlanareanestimated$3.4millionintheGeneralFund

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Example:PoliceSergeantwith33yearsofservice

SamplePre-1945Police/FirePensionBenefit

$4,593

MonthlyPension

=$5,997/month(Salary)**X71.58%

In 2010:

$1,117

MonthlyPension=$1,561/month(Salary)X71.58%

In 1979:71.58%*=50%+(13*1.66%)ofSalary=33YOS

*Benefitequals50%ofsalary.Foreachadditionalyearofservicebeyond20years,theemployeereceivesanadditional1.66%ofsalary

**Salaryusedinpensioncalculationbasedonlastclassificationheldduringlastyearofservice.AdjustswithPOAandFFAnegotiatedincreasesplusanadditional7%forEPMC

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PensionObligationBonds

PensionObligationBonds(POBs)areusedtofundpensioncosts

In1995,theCityissuedPOBs totaling$108.6million.Thecurrentoutstandingliabilityforthebondsis$94million,reflecting$70.3millioninprincipaland$23.7millionininterest.

TheaverageannualdebtservicepaymentforFY10- FY11is$11.4million(GeneralFundportion- $4.2million)

ForFY12- FY21,theaverageannualpaymentis$7.1

million(GeneralFundportion- $4.2million)

*The2002POBs wererefundedasthe1995POBs debtservicehadbecomeunaffordable.HarborandWaterdidnotparticipateastheyhadsufficientcash tomakepayments

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CurrentPension

CostIssues

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TrendAnalysis

NOTE: FromFY00 FY04,theCitydidnotcontributetoPERSastheCitywassuper-funded

GeneralFundExpenditures

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CityPERSCosts

NOTE: FromFY00 FY04,theCitypaid$0.00toPERSbecausetheCitywassuper-fundedduetothePOBs andmarketgains.TheamountslistedindicatewhatwouldhavebeenpaidhadtheCitynotbeensuper-funded.

Super-funded

PERSAverageAnnualRateofGrowthFY00 FY10:8.7%

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FY11ProjectedPERSCosts

$84.0100%TOTALPERSCOST

$7.48.8%EmployeeContribution

91.2%

29.2%

62.0%

% ofTotal

$76.6

$24.5

$52.1

All Funds(in Millions)

$50.4TOTALCITYCOST

$14.7

EmployerPickupofEmployee

Share

$31.3EmployerShare

General Fund(in Millions)

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RisingpensioncostsisnotisolatedtoCalPERS alone

OtherSystems UnfundedLiabilities:

CaliforniaStateTeachersRetirementAssociation- $22.5billion

LACountyEmployeesRetirementAssociation- $4.9billion

LACityEmployeesRetirementSystem- $2.2billion

OrangeCountyEmployeesRetirementSystem- $3.1billion

SanDiegoCityRetirementSystem- $2.8billion

OtherAgencies

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Summary

Agreaterpercentageofourbudgetwillbespenton

pensions

InFY10,pensioncostscomprise13.1%ofGPbudget

Ifnoactionistaken,byFY14,pensioncostsareprojectedto

comprise17.6%ofGPbudget

Toensurefiscalsustainability,theCityshouldstart

mitigatingrisingpensioncosts

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PensionReform

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CityActionsTakenToDate

ReducedtheWorkforce GeneralFundBudgetedFTEshavebeenreducedfrom3,459inFY03to2,945inFY10

Reducedformulaformiscellaneousemployeesfrom2.7%@55 to

2.5%@55 in2006

Allemployeespay2%ofpayroll,contributing$8millionayear

LedlobbyingeffortswithPERStoenactrate-smoothingtoaddress28%

marketlossesin2009

Includedare-openerinthePOA/FFAlaboragreementsallowingmutuallyagreeablechangestothepensionplan

NegotiatedatriggerinthePOAagreementthatifany3ofcomparableagenciesconverttoa3%@55formula,thePOAwouldautomaticallyconverttothatformulafornewmembers

Engagedwithlegislativecommitteesregardingpensionreform

EvaluatedPERS/PARSsolution

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CitysOptions CurrentEmployees

Employeespayemployeeshareofpensioncosts SavingsfromfullPERSpickup AllFunds:$25M

Savingsfrom1%- AllFunds:$4M

SavingsfromfullPERSpickup GeneralFund:$16M

Savingsfrom1%- GeneralFund:$2.4M

Requires Negotiations

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CitysOptions FutureEmployees

EstablishNewTier(s)

Examplesinclude:

ModifyPERSbenefitformula(e.g.age,percentage,salary)

Usehighest3yearsofsalaryvs.singlehighestyear

DonotreportEPMCtoPERS

Evaluateotherplanchanges

Reviewexistingagreementsforotherpotentialchanges

Requires Negotiations

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Conclusion

TheCityCharterstatesthattheCityshallparticipateintheStateEmployees RetirementSystem

Changestoemployeepensionswillrequirenegotiationswithemployeeorganizations

CanonlyamendPERScontractsonceeverythreeyears

(Miscellaneous,PoliceandFireareseparateplans)

OtherchangestolocalgovernmentretirementsystemswillrequirechangestoStateretirementlaw

HumanResources,incoordinationwiththeCityAttorney,willcontinuetolookfornewalternatives(withinexistinglaw)

8/9/2019 Pension Part II - Final

20/20

CityCouncilStudySession

EmployeePensions

PartIIApril20,2010