Clever ruse: Mission Viejo Tier 2 pension reform linked to employee wage increase. (pt 1 of 2-pt series)


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MV employee benefits

[read pt. 2 of this report here.]

Clever ruse. Mission Viejo  2 tier pension reform linked to employee pay increases. Part 1 of 2
Item #21 of Monday’s Mission Viejo city council meeting, under the City Managers report, places the council in an awkward position. Do they vote for a two tier pension system for new hires or do we oppose a wage increase? Taken by themselves the choices are rather easy. However our city manager has been clever to link these two important issues on a single Agenda item. Unless he agrees to bifurcate this into two distinct issues, there is no way to vote no if you oppose the wage increase. Interesting that Trish Kelley placed a two tier pension reform for new hires  on an Agenda 11 months ago when it could have been voted upon without complications.
Implementation Timetable
To implement a new retirement tier as soon as possible, Council action is required tonight that will culminate in implementation in mid-July. The implementation timetable required by CalPERS to implement
a second tier retirement program is as follows:
May 16 – Adopt Resolution of Intent to Amend Contract and First Reading of Ordinance, to establish PERS 2nd Tier and Adopt resolution establishing the employee contribution rate for employees hired after the contract amendment is effective. June 6 – Second Reading of Ordinance
July 6 – Ordinance becomes effective
July 9 – First day of the start of a pay period after Ordinance becomes effective
What Other Orange County Cities Are Doing
To date, four other Orange County cities have taken actions to establish a lower, second tier retirement system for new hires: Cypress, Rancho Santa Margarita, Fountain Valley and Costa Mesa. Three of these
cities chose to implement 2 @ 60 as their second tier benefit level for miscellaneous employees; Cypress selected 2 @ 55. In addition, Fullerton is moving in the direction of implementing a second tier.
Employee Compensation
Staff proposes that the implementation of the hybrid defined benefit/defined contribution retirement program for new hires be accompanied by some changes to the structure of employee compensation for new and
existing employees. Employee compensation has not been increased for 2-1/2 years. In fact, during the past two years, employees have been required to take a 2% reduction in their compensation and the
Consumer Price Index has increased 4.88%.
Staff recommends that existing employees contribute a greater share of the cost of their current PERS retirement benefit. Currently, City employees pay 3% of their 8% employee share of PERS costs. It is
proposed that for FY 2011-12, all existing employees pay an additional 1.25%, for a total of 4.25% of their 8% share of PERS. That 1.25% would be a direct budget savings for the City. The plan would be for
current employees to pick up an additional 1.25% of their share of PERS each year following for the next three years 2012-13, 2013-14 and 2014-15, until they are paying their full 8% share in fiscal year 2014-15.
(New employees would pay 4.25% of their 7% share in FY 2011-12, 5.5% in 2012-13 and their full 7% share in 2013-14.)
Second, in February 2011, staff conducted a market survey of our 14 comparable cities, which indicated that on average, City employee salaries were 2.63% below the market median. Council policy calls for
salaries to be at the market median to maintain our competitiveness and to attract and retain quality employees. Salaries become even more of a factor as retirement benefits are being decreased. To move
toward achieving median salaries, staff is recommending a 2.63% salary increase, effective the first full pay period in January 2012.
Combined with the additional 1.25% employees would pay toward their retirement, the net increase to the take home pay of the City employees receiving benefits will therefore be 1.38%.
The Council’s existing policy on employee compensation calls for employees to be paid salaries that are at the market median and total compensation that is 5% above the market median. The proposed adjustments
for FY 2011-12 will achieve the policy goal of market median salaries, but total compensation will be only at the median rather than above the median. For FY 2012-13, the proposal is to ask employees to absorb
another 1.25% of their share of PERS retirement benefit and to increase salaries based on the percentage growth in the city’s two major revenue sources, property tax and sales tax, up to 2.5%. The net result
would be anywhere from a -1.25% adjustment to a +1.25% adjustment in compensation, depending on revenue growth.
Costs and Cost Savings
The hybrid retirement program for new hires will result in cost savings to the City over time, as new employees are hired and older employees leave the City. Based on a 5% turnover rate, it would take 10
years before half of the City’s employees would be in the new lower tier and 20 years before all employees would be in the new tier. However, the City will realize retirement cost savings immediately for current
employees based on the proposal to have them pick up an additional 1.25% of their share of PERS costs in FY 2011-12 and an additional 1.25% each year for the next three years.
Based on January 1, 2012 and 2013 implementation dates of the proposed compensation adjustments, the cost to implement the proposed salary increases net of the savings in retirement costs would be
approximately $90,000 in FY 2011-12, between $117,000 and $265,000 in FY 2012-13 and between $55,000 and $350,000 in FY 2013-14 and annually thereafter, depending on the property tax and sales tax
revenue growth in FY 2012-13.
Over the past two years, the City has reduced its workforce by 12 full-time positions, or approximately 8%. These 12 eliminated positions will continue to save the City over $1 million per year in personnel costs.
The savings from the downsizing of the City’s workforce more than offset the cost of the proposed adjustments to employee compensation.
RESOLUTION NO. 11-XX
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF MISSION VIEJO MODIFYING THE EMPLOYER PAID MEMBER CONTRIBUTIONS TO THE CALIFORNIA PUBLIC EMPLOYEES’ RETIREMENT SYSTEM.
WHEREAS, the governing body of the City of Mission Viejo has the authority to implement Government Code Section 20691; and WHEREAS, the governing body of the City of Mission Viejo has a written labor
policy or agreement which specifically provides for the normal member contributions to be paid by the employer; and WHEREAS, one of the steps in the procedures to implement Section 20691 is the adoption by the governing body of the City of Mission Viejo of a Resolution to commence said Employer Paid Member Contributions (EPMC); and  WHEREAS, the governing body of the City of Mission Viejo has identified the following conditions for the purpose of its election to pay EPMC for employees hired on or prior to July 8, 2011:
1. This benefit shall apply to all employees of the miscellaneous group.
2. This benefit shall consist of the employer paying 5% of the normal member contributions as EPMC.
3. This benefit shall consist of the employee paying 3% of the normal member contributions.
4. The effective date of this Resolution shall be July 8, 2011.
WHEREAS, the governing body of the City of Mission Viejo has identified the following conditions for the purpose of its election to pay EPMC for employees hired after July 8, 2011:
1. This benefit shall apply to all employees of the miscellaneous group.
2. This benefit shall consist of the employer paying 2.75% of the normal member contributions as EPMC.
3. This benefit shall consist of the employee paying 4.25% of the normal member contributions.
4. The effective date of this Resolution shall be July 8, 2011.
NOW THEREFORE, BE IT RESOLVED, that the governing body of the City of Mission Viejo elects to pay EPMC, as set forth above.
PASSED, APPROVED AND ADOPTED this 16th day of May, 2011
Gilbert notes:
Today’s OC Register Commentary page 5 by Brian Calle, dealing with lifeguards packages, hits the nail on the head. Specifically benchmarking against other cities to justify increases in compensation. “We are seeing the nefarious ‘ratcheting effect’ as one city’s lifeguards match the pay offer by another city, moving ever upward.”
Our city manager has a habit of using other cities compensation data to justify increases in Mission Viejo.
If we don’t give our city employees an increase where are they going to go and find a comparable job with the benefits we provide?
Approval (or rejection) of his item predates our traditional budget adoption.
His reference to the increase in consumer price index is being felt by everyone including those residents who collect Social Security where this year Mission Viejo retirees are not receiving any increase in that COLA.

Read part 2 of this report, where I detail the many employee benefits.


About Larry Gilbert