So You Need To Reduce Retirement Costs – Stott

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City of Fremont
1
Budget Development Strategies
1. Reduction in Overall Employee
Compensation Expenses
2. Transition to Alternative Service
Delivery Models
3. Reduction or Elimination of
Services to the Community
4. Revenue Enhancements
2
Average Employee Cost
3
CalPERS Rate History
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
94
/9
5
95
/9
6
96
/9
7
97
/9
8
98
/9
9
99
/0
0
00
/0
1
01
/0
2
02
/0
3
03
/0
4
04
/0
5
05
/0
6
06
/0
7
07
/0
8
08
/0
9
09
/1
0
10
/1
1
11
/1
2
12
13
/
/1 13
4
14 Pro
/1
5 j
15 Pro
/1
6 j
Pr
oj
Percent of Wages
Public Safety Employees
Employer Contribution
Employee Contribution
-- Projected based on PERS Achieving 7.75% (Could increase to 49% with poor returns)
4
CalPERS Rate History
Miscellaneous Employees
Percent of Wages
30%
25%
20%
15%
10%
5%
94
/9
95 5
/9
96 6
/9
97 7
/9
98 8
/9
99 9
/0
00 0
/0
01 1
/0
02 2
/0
03 3
/0
04 4
/0
05 5
/0
06 6
/0
07 7
/0
08 8
/0
09 9
/1
10 0
/1
11 1
/1
2
1
13 2
/1 /1
3
14 4 P
/1 ro
15 5 P j
/1 ro
6 j
P
ro
j
0%
Employer Contrubition
Employee Contribution
-- Projected based on PERS Achieving 7.75% (Could increase to 30% with poor returns)
5
CalPERS Rates
2009/10 2010/11
Public Safety
29.7%
30.0%
Change from previous year
Miscellaneous
Change from previous year
2011/12
36.5%
+$1.6 million
18.6%
18.4%
22.9%
+$1.9 million
Total Change = $3.5 million
6
Labor Negotiation Parameters
(Multi-Year Agreements)
Short -term
• Compensation reduction equivalent to a 4.25%
salary reduction
–
Option to pay via PERS Cost Sharing of Employer
Rate
Long -term
• 2nd Tier Retiree Medical for new hires
• 2nd Tier Retirement for new hires
–
–
Safety = 3% @ 55, 36 month calculation
Misc. = 2% @ 60, 36 month calculation and 2% COLA
7
Council Adopted
Labor Relations Policy
1.
2.
3.
4.
5.
All labor negotiations will be conducted by designated representatives
at the bargaining table. All City representatives operate upon the
direction of the City Council.
No individual Council member will individually negotiate with any
bargaining group member.
City representatives commit to keeping the Council fully informed and
advising them of all substantive proposals.
Each Council member shall inform the City Manager at their earliest
convenience and publicly disclose in open session any
communications he or she may have had with any City bargaining
group member(s) that has any reference to the negotiations.
Consistent with Government Code section 54963, confidentiality of
closed session discussions will be maintained.
8
Cost Sharing Employer Rate
Government Code 20516
Section 20516 permits the City to share
the cost of optional benefits provided to
employees under its PERS contract via:
– PERS contract amendment (section a)
– MOU deduction outside of the PERS contract
(section f)
9
CalPERS Contract Amendment
• Requires vote of impacted employees
- Requires all units agree to same amount of
cost sharing (employer rate)
- Option for “fixed” amount or “up to” amount
- Must adopt 414(h)(2) Council Resolution
Pros
Cons
Employee funds remain
employees’
Constraint (max amount of cost
sharing) based on enhancement
(varies by agency)
Clarity with tax liability
Timing required to implement
Lack of flexibility
10
MOU Deduction
Process:
– Reach agreement with labor association(s)
– Must have 414(h)(2) Council Resolution
– Recommend Tax Attorney Opinion Letter
Pro
Immediate implementation
Flexibility – can amend the amount
as quickly as payroll can
implement and allows for varying
amount of cost sharing by labor
association
Cons
Funds are treated as employer
contribution, thus employee would
not be eligible to receive if they
take refund prior to retirement
Tax liability – no IRS letter ruling
on “pre-tax” contribution
11
Fremont Labor Relations Results
• All labor associations have settled
– 7 of 9 labor associations elected PERS cost
sharing option
• 2 of 7 labor associations via PERS Contract
Amendment (Fire)
• Other 5 labor groups cost sharing amount vary
– 2 of 9 elected salary reduction
• 4 of 9 required mediation from State
Mediation and Conciliation Authority
12
Fremont 2nd Retirement Benefit
Actuary Estimated City Savings (000’s)
Savings 3% @ 55 (Safety)
Year
Savings 2% @ 60 (Misc)
Employer
Employee
Total
Employer
Employee
Total
Year 2011/12
$
41
$
-
$
41
$
128
0
$
128
Year 2012/13
$
85
$
-
$
85
$
262
0
$
262
Year 2013/14
$
137
$
-
$
137
$
397
0
$
397
Year 2014/15
$
193
$
-
$
193
$
539
0
$
539
Year 2015/16
$
254
$
-
$
254
$
684
0
$
684
Year 2016/17
$
320
$
-
$
320
$
835
0
$
835
Year 2017/18
$
388
$
-
$
388
$
991
0
$
991
Year 2018/19
$
462
$
-
$
462
$
1,147
0
$
1,147
Year 2019/20
$
535
$
-
$
535
$
1,311
0
$
1,311
Year 2020/21
$
609
$
-
$
609
$
1,479
0
$
1,479
Year 2021/22
$
682
$
-
$
682
$
1,648
0
$
1,648
Year 2022 Total Savings= $2,330
13
Fremont Lessons Learned
•
•
•
•
Openly adopt labor negotiation strategies
Research options prior to negotiations
Provide justifying budget information to unions
Help employees understand benefits of cost sharing
retirement costs
– Pre-tax deduction
– Public perception / participation with cost of retirement
– Aligned with pension reform efforts
• Consider hiring outside labor negotiators
• Consider consulting tax attorney (if cost sharing via MOU)
14
Contact Details
Brian Stott
Human Resources Director
510-494-4664
[email protected]
15
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