Loading...
HomeMy WebLinkAbout03 - PERS Ordinance - Contract Amendmentt .. COUNCIL AGENDA N0. J dn—q-Q CITY OF NEWPORT BEACH CITY COUNCIL STAFF REPORT Agenda Item No. 3 September 11, 2007 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: City Manager's Office Dave Kiff, Assistant City Manager 949 - 644 -3002, dkiff @city.newport- beach.ca.us Human Resources Department Barbara Ramsey, Human Resources Director 949 - 644 -3303, bramsey @city.newport- beach.ca.us SUBJECT: Implementation of PERS Enhanced Retirement formula for Fire Safety and Miscellaneous Employees (including Key and Management). RECOMMENDATION: 1. Adopt Resolution 2007 -_ relating to the City's Intention to Approve an Amendment to the Contract between the Board of Administration, California Public Employees' Retirement System (PERS) and the Newport Beach City Council to authorize a "3 % @50" retirement formula for specified safety employees within the Fire Department and an employee- funded "2.5 % @55" retirement formula for local miscellaneous members, including Key and Management. 2. Introduce Ordinance #2007 -_ relating to a PERS contract amendment and pass to 2n4 Reading on October 9", 2007: DISCUSSION: The California Public Employees Retirement System (PERS or www.calpers.ca.gov) manages the largest retirement program for Newport Beach city employees, as well as City employees' health benefit plans (Newport Beach City employees generally do not receive Social Security, because the City does not participate in Social Security). The PERS portfolio is one of the largest in the nation, and provides retirement and health benefits to approximately 1.5 million public employees, retirees, and their families and to more than 2,500 employers. Newport Beach contracts with PERS to administer city employees' benefits, including a defined benefit (DB) retirement plan. This agenda item implements two separate changes to our contract with PERS. Both changes adjust the retirement programs for specked city employees. PERS requires that the changes be done within a "contract amendment." First Change — 3 % @50 for Fire. The City's existing and approved Memoranda of Understanding (MOU) with the Firefighters and Fire Management Associations (approved on November 8, 2005 and November 22, 2005 respectively) provide that the City implement a "3% Implementation of PERS Enhanced Retirement for Fire Safety and Miscellaneous Employees September 11, 2007 Page 2 @ 50" retirement program for Fire Fighters and specified Fire Management no later than December 31, 2007. 03% @ 50" means that an employee's retirement benefit will be calculated as follows: At age 50, an employee is eligible to retire. The employee's retirement is then equal to 0.03 multiplied by the employee's years of service multiplied by the employee's annual salary in the last 12 months that the employee worked. As an example: Fire Engineer Smith is 50 years old. She has been an employee within the PERS system for 25 years. Her salary for the 12 months before retirement was $85,500. Her PERS retirement will be 0.03 x 25 x $85,500 or $64,125.00 per year (because the City does not pay into Social Security, this is likely to be the major retirement benefit that this employee would receive). The City and its taxpayers fund retirement programs on an ongoing, annual basis and as directed by our PERS contract. Each year, PERS actuaries estimate the cost of funding the City's chosen retirement programs as a percentage of the City's overall payroll. For example, in 2007, the City's "PERS rate" was 14.182% of payroll for most non - safety employees and 23.212% of payroll for most safety employees. PERS uses a 20 -year rolling "rate smoothing" plan to keep cities' rates relatively unchanged over time, despite larger fluctuations in equity markets and in the value of PERS' investments. When the City approved an increase in the retirement benefit for Fire employees, it meant that the cost to implement that benefit through PERS would go up. Going to the 3% @ 50 plan for Fire, according to the actuarial valuation provided by PERS, will increase the PERS "employer rate" (meaning what the City pays as a percentage of payroll) for all safety employees by 2.154% (in other words, adding 2.154% to the estimated 23.212% Safety Rate for 2008). The dollar cost of bringing Fire up to the agreed -upon retirement will be $313,665.00 for December 2007 through June 2008. For future years, the cost will be approximately $627,330.00 with increases proportionate to future salary increases. Readers should note that this cost may be considered in light of salary increases within the Fire MOU. Fire safety employees — who are now eligible for the 3% @ 50 retirement program — agreed to take a lower salary increase (2% effective July 1, 2007) in exchange for the 3% @ 50 retirement program. The City's other "safety" personnel — police officers and police management — received the same 3% @ 50 retirement benefit in August 2002. Second Change — 2.5% @ 55 for "Miscellaneous" Employee Groups. Full -time non - safety ( "miscellaneous ") employees within the City are typically represented by one of three bargaining units — the Newport Beach City Employees Association ( "CEA "), the Newport Beach Employees' League ( "League"), and the Newport Beach Professional and Technical Employees Association ( "Prof- Tech "). These three non - safety units are collectively referred to as the "Miscellaneous" bargaining units. The City reached tentative agreement with the three Miscellaneous units as a result of negotiations conducted in accordance with the Myers - Milias -Brown Act ( "MMBA" — state law relating to the labor negotiations process with public employees) on July 19, 2007. Among other things, the tentative agreement provided that the City would be willing to amend its Implementation of PERS Enhanced Retirement for Fire Safety and Miscellaneous Employees September 11, 2007 Page 3 contract with PERS to implement a "2.5% @ 55" retirement benefit with the City's miscellaneous employees effective January 1, 2008, if the employees would pay for the benefit by forgoing certain salary increases. 2.5% @ 55 means that an employee's retirement benefit will be calculated as follows Librarian // Jones is 55 years old. He has been an employee within the PERS system for 25 years. His sa /ary for the 12 months before retirement was $69,264. 00. His retirement will be 0.025 x 25 x $69,264.00 or $43,290.00 per year (because the City does not pay into Social Security, this is likely to be the major retirement benefit that this employee would receive). The City Council directed that the employees pay for the benefit by requiring that the so- called "employee rate" portion of the PERS rate (which the City now pays on behalf of the employees; a relatively common practice in municipalities) be changed to clearly show that the net increase in cost (PERS puts this cost at about 3.429/6 of eligible payroll) resulting from the 2.5% @ 55 plan be put on the employee rate side of the PERS payment. For example: How it works today Employer (City) part of the rate: 7.00% of payroll Employee (yet still paid by the City) part of the rate: + 7.00% of payroll City's overall non - safety rate: 14.06/o of payroll (est) How it would work on and after January 1, 2008 Employer (City) part of the rate: Employee (yet still paid by the City) part of the rate: City's overall non - safety rate, before employee contri Additional employee -paid part of City non - safety rate City's overall non - safety rate: 7.00% of payroll + 7.00% of payroll :)ution: 14.00% of payroll (est) + 3.42% of payroll 17.42% of payroll (est) As a part of negotiations, the Miscellaneous units agreed to forgo 3.42% in salary increases and instead have 3.42% of an overall 3 -year, 11% salary package applied directly to PERS to cover the full cost of the 2.5% @ 55 plan. in effect, this employee -paid benefit will serve as a Defined Contribution ( "DC ") component of the PERS "DB" plan, because the employees can take their accrued 3.42% of payroll payment with them should they leave the PERS system. This benefit will, if approved, apply to "Key and Management" employees (who are not represented and do not have an MOU). Department directors are part of the Key and Management classification. This Agenda Item. The attached Resolution of Intention is required by PERS and is the first step in implementing the two described enhanced retirement plans. The resolution's purpose is to notify the public that the City Council intends to amend the City's contract with PERS — it also shows what the cost of the amendment will be. The PERS contract amendment cannot become effective until the adoption of an ordinance. The ordinance will be heard today for 1St reading. Second reading may not occur until at implementation of PERS Enhanced Retirement for Fire Safety and Miscellaneous Employees September 11, 2007 Page 4 least twenty (20) days have passed since the Council adopted the proposed Resolution of Intention. Therefore, 2 "tl reading of the ordinance approving the PERS contract amendment is expected to be on the City Council's agenda for October 9, 2007. The ordinance takes effect 30 days after 2 I reading. The effective date of the PERS contract amendment would be December 22, 2007. Funding Availability: Funding for the .fire safety contract amendment is in the current Fire Department Budget for salary and benefits. The enhanced retirement for miscellaneous employees is fully funded by the employees. The Council's adopted FY 2007 -08 Budget already includes the 3% @ 50 cost for Fire and included an assumption consistent with the salary and benefit package negotiated with the Miscellaneous units. No budget amendment is required for either retirement proposal. Prepared by: "l ndolyn B ar and ave Kiff Human Resources Manager Assistant City Manager Attachments: Resolution NO.2007- Ordinance NO. 2007 - Draft Contract Amendment Submitted by: Ilk Dave Kiff and Barbara Ramsey Assistant City Manager Human Resources Director E RESOLUTION NO. 20017-. A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH DECLARING ITS INTENTION TO APPROVE AN AMENDMENT TO CONTRACT BETWEEN THE BOARD OF ADMINISTRATION, CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM AND THE CITY COUNCIL, CITY OF NEWPORT BEACH WHEREAS, the Public Employees' Retirement Law permits the participation of public agencies and their employees in the Public Employees' Retirement System by the execution of a contract, and sets forth the procedure by which said public agencies may elect to subject themselves and their employees to said Law; and WHEREAS, one of the steps in the procedures to amend this contract is the adoption by the governing body of the public agency of a resolution giving notice of its intention to approve an amendment to said contract, which resolution shall contain a summary of the change proposed in said contract; and WHEREAS, the following is a statement of the proposed change: To provide Section 21354.4 (2.5% @ 55 Full formula) for local l miscellaneous members and Section 21362.2 (3% @ 50 Full formula) for local fire members only. NOW, THEREFORE, BE IT RESOLVED that the governing body of the above agency does hereby give notice of intention to approve an amendment to the contract between said public agency and the Board of Administration of the Public Employees' Retirement System, a copy of said amendment being attached hereto, as an "Exhibit" and by this reference made a part hereof. Passed and adopted by the City Council of the City of Newport Beach at a regular meeting held on the 11th day of September 2007. Steven Rosanksky, Mayor ATTEST: LaVonne M. Harkless, City Clerk ORDINANCE NO. 2007- AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH 4 . AUTHORIZING AN AMENDMENT TO THE CONTRACT BETWEEN THE CITY AND THE BOARD OF ADMINISTRATION OF THE CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM The City Council of the City of Newport Beach does hereby ordain as follows Section 1. That an amendment to the contract between the City of Newport Beach and the Board of Administration, California Public Employees' Retirement System is hereby authorized, a copy of said amendment being attached hereto, marked "Exhibit ", and by such reference made a part hereof as though set out in full. Section 2. The Mayor of the City of Newport Beach is hereby authorized, empowered and directed to execute said amendment for and on behalf of the City. Section 3. This Ordinance shall take effect thirty (30) days after its adoption, and prior to the expiration of fifteen (15) days from the passage thereof shall be published once in the Daily Pilot, a newspaper of general circulation, published in Costa Mesa and circulated in the City of Newport Beach, and thenceforth and thereafter shall be in full force and effect. Adopted and approved this 9th day of October 2007 by the following vote: AYES, COUNCILMEMBERS NAYS, COUNCILMEMBERS ABSTAIN, COUNCILMEMBERS Steven Rosansky, Mayor Attest: LaVonne M. Harkless, City Clerk California Public Employees' Retirement System ++i111111111 AMENDMENT TO CONTRACT Between the Board of Administration EXHIBIT California Public Employees' Retirement System and the City Council City of Newport Beach ( ,)he Board of Administration, California Public Employees' Retirement System, hereinafter referred to as Board, and the governing body of the above public agency, hereinafter referred to as Public Agency, having entered into a contract effective July 1, 1945, and witnessed April 27, 1945, and as amended effective March 1, 1948, November 1, 1951, April 1, 1956, October 31, 1970, September 18, 1971, December 11, 1971, September 24, 1977, December 18, 1977, June 17, 1978, March 24, 1979, June 30, 1979, January 12, 1989, December 2, 1989, June 12, 1996, July 12, 2000, August 26, 2000, June 15, 2002, November 30, 2002, November 13, 2004 and July 23, 2005 which provides for participation of Public Agency in said System, Board and Public Agency hereby agree as follows: A. Paragraphs 1 through 13 are hereby stricken from said contract as executed effective July 23, 2005, and hereby replaced by the following paragraphs numbered 1 through 14 inclusive: All words and terms used herein which are defined in the Public Employees' Retirement Law shall have the meaning as defined therein unless otherwise specifically .provided. "Normal retirement age" shall mean age 55 for local miscellaneous members, age 55 for ocean beach lifeguards and age 50 for local fire members and local police members. 2. Public Agency shall participate in the Public Employees' Retirement System from and after July 1, 1945 making its employees as hereinafter provided, members of said System subject to all provisions of the Public Employees' Retirement Law except such as apply only on election of a contracting agency and are not provided for herein and to all amendments to said Law hereafter enacted except those, which by express provisions thereof, apply. only on the election of a contracting agency. t PLEASE DO NOT SIGN "EXHIBIT ONLY" 3. Employees of Public Agency in the following classes shall become members of said Retirement System except such in each such class as are excluded by law or this agreement: a. Local Fire Fighters (herein referred to as local safety members); b. Local Police Officers (herein referred to as local safety members); C. Ocean Beach Lifeguards (included as local safety members); d. Employees other than local safety members (herein referred to as local miscellaneous members). 4. In addition to the classes of employees excluded from membership by said Retirement Law, the following classes of employees shall not become members of said Retirement System: a. POLICE CADETS; AND b. RESERVE OFFICERS. 5. The percentage of final compensation to be provided for each year of credited prior and current service as a local miscellaneous member in employment before and not on or after the effective date of this amendment to contract shall be determined in accordance with Section 21354 of said Retirement Law (2% at age 55 Full). 6. The percentage of final compensation to be provided for each year of credited prior and current service as a local miscellaneous member in employment on or after the effective date of this amendment to contract shall be determined in, accordance with Section 21354.4 of said Retirement Law (2.5% at age 55 Full). 7. The percentage of final compensation to be provided for each year of credited prior and current service as a local fire member and local police member shall be determined in accordance with Section 21362.2 of said Retirement Law (3% at age 50 Full). 8. The percentage of final compensation to be provided for each year of credited prior and current service as ocean beach lifeguards shall be determined in accordance with Section 21363.1 of said Retirement Law (3 % at age 55 Full). 9. Public Agency elected and elects to be subject to the following optional provisions: a. Section 20421 ( "Local Safety Member' shall include ocean beach lifeguards of a city as described in Government Code Section 20421). b. Section 21574 (Fourth Level of 1959 Survivor Benefits). C. Section 21024 (Military Service Credit as Public Service). (- ti PLEASE DO NOT SIGN "EXHIBIT ONLY" d. Section 21389 (Second Opportunity to Elect 1959 Survivor Benefits): Legislation repealed said Section effective September 27, 1979. e. Section 20965 (Credit for Unused Sick Leave) for local miscellaneous members only. f. Section 20042 (One -Year Final Compensation). g. Section 21548 (Pre- Retirement Option 2W Death Benefit). 10. Public Agency, in accordance with Government Code Section 20790, ceased to be an "employer" for purposes of Section 20834 effective on September 24, 1977. Accumulated contributions of Public Agency shall be fixed and determined as provided in Government Code Section 20834, and accumulated contributions thereafter shall be held by the Board as provided in Government Code Section 20834. 11. Public Agency shall contribute to said Retirement System the contributions determined by. actuarial valuations of prior and future service liability with respect to local miscellaneous members and local safety members of said Retirement System. 12. .Public Agency shall also contribute to said Retirement System as follows: a. Contributions required per covered member on account of the 1959 Survivor Benefits provided under Section 21574 of said Retirement Law. (Subject to annual change.) In addition; all assets and liabilities of Public Agency and its employees shall be pooled in a single account, based on term insurance rates, for survivors of all local miscellaneous members and local safety members. b A reasonable amount, as fixed by the Board, payable in one installment within 60 days of date of contract to cover the costs of administering said System as it affects the employees of Public Agency, not including the costs of special valuations or of the periodic investigation and valuations required by law. C. A reasonable amount, as fixed by the Board, payable in one installment as the occasions arise, to cover the costs of special valuations on account of employees of Public Agency, and costs of the periodic investigation and valuations required by law. 13. Contributions required of Public Agency and its employees shall be subject to adjustment by Board on account of amendments to the Public Employees' Retirement Law, and on account of the experience under the Retirement System as determined by the periodic investigation and valuation required by said Retirement Law. 14. Contributions required of Public Agency and its employees shall be paid by Public Agency to the Retirement System within fifteen days after the end of the period to which said contributions refer or as may be prescribed by Board regulation. If more or less than the correct amount of contributions is paid for any period, proper adjustment shall be made in connection with subsequent remittances. Adjustments on account of a in contributions required of any employee may be.made by direct paymentq� "en the employee and the Board. B. This amendment shall bee on the 22nd day of December 2007 BOARD OF ADMINIS CITY COUNCIL PUBLIC EMPLOYF_BIWTIREMENT SYSTEM CITY OF NEWPORT BEACH BY BY LORI �a�G GARTLAND, CHIEF PRESIDING OFFICER EMPLOYER SERVICES DIVISION PUBLIC EMPLOYEES' RETIREMENT SYSTEM �t� \v Witness Clerk AMENDMENT ER#60 PERS- CON -702A (Rev. 10105) t CITY OF NEWPORT BEACH MEMORANDUM TO: Mayor and Members of the City Council FROM: Dave Kiff, Assistant City Manager DATE: September 10`", 2007 RE: Agenda Item #3 — PERS Contract This memorandum is a correction to two aspects of the Staff Report for Agenda Item #3. 1 — On page 2 of the staff report (Item #3), 1 wrote: The City and its taxpayers fund retirement programs on an ongoing, annual basis and as directed by our PERS contract. Each year, PERS actuaries estimate the cost of funding the City's chosen retirement programs as a percentage of the City's overall payroll. For example, in 2007, the City's `PERS rate" was 14.182% of payroll for most non - safety employees and 23.212% of payroll for most safety employees. PERS uses a 20 -year rolling "rate smoothing" plan to keep cities' rates relatively unchanged over time, despite larger fluctuations in equity markets and in the value of PERS' investments. I misstated the PERS rates that we pay, primarily by neglecting to add on the employer - paid employee contribution to the PERS safety rate. The paragraph should read with changes underlined): The City and its taxpayers fund retirement programs on an ongoing, annual basis and as directed by our PERS contract. Each year, PERS actuaries estimate the cost of funding the City's chosen retirement programs as a percentage of the City's overall payroll. For example, for Fiscal Year 2007 -08, the City's °PERS rate" will be 15.691% of payroll for most non - safety employees and 35.098% of payroll for most safety employees. PERS uses a 20 -year rolling "rate smoothing" plan to keep cities' rates relatively unchanged over time, despite larger fluctuations in equity markets and in the value of PERS' investments. For your information, the projected FY 2008 -09 Employer Contribution Rates are expected to go down slightly (notwithstanding the proposed employee- funded 2.5% at 55 PERS plan). 2 — The above information also changes another section of the Staff Report (page 3). The Staff Report reads: City Hall • 3300 Newport Boulevard • Post Office Box 1768 • Newport Beach, California 92659 -1768 Memo regarding Agenda Item #3 September 10, 2007 Page 2 How it works today Employer (City) part of the rate: 7.00% of payroll Employee (yet still paid by the City) part of the rate: + 7.00% of payroll City's overall non - safety rate: 14.00% of payroll (est) How it would work on and after January 1, 2008 Employer (City) part of the rate: Employee (yet still paid by the City) part of the rate: City's overall non - safety rate, before EE contribution: Additional employee -paid part of City non - safety rate City's overall non - safety rate: That section of the Staff Report should read instead: 7.00% of payroll + 7.00% of payroll 14.00% of payroll (est) + 3.42% of payroll 17.42% of payroll (est) How it works today Employer (City) part of the rate: 8.691% of payroll Employee (yet still paid by the City) part of the rate: + 7.000% of payroll City's overall non - safety rate: 15.691% of payroll (est) How it would work on and after January 1, 2008 Employer (City) part of the rate: Employee (yet still paid by the City) part of the rate: City's overall non - safety rate, before EE contribution: Additional employee -paid part of City non - safety rate City's overall non - safety rate: 8.691% of payroll + 7.000% of payroll 15.691% of payroll (est) + 3.420% of payroll 19.111 % of payroll (est) Please note that the dollar cost to the City of the PERS changes as shown in the Staff Report for Agenda Item #4 (MOUs) and shown again here remains correct. Miscellaneous MOUs -- Cost Estimate (FY 2007 -08) Salaries $ 1,013,202 2% retroactive to July 2007 172,334,677 Cash Value % of City Operating Budget 2.5% in Jan 2008 Retirement $ - -- 2.5% at 55 Plan - effective 1 -1 -08 Medical Benefit — MERP ($1.50 to $2.50 /month) $ 4,190 — Cafeteria ($100 /mo more in January 2008) $ 252,600 Certification Pay (rough esfimate) $ 7,000 2 Half -Day Holidays $ 120,924 ' Total Value of Proposed Changes $ 1,397,916 Total Cash Value of Proposed Changesl $ 1,276,992 ' FY 2007 -08 City Operating Budget $ 172,334,677 Cash Value % of City Operating Budget 0.74% ' Holiday estimate represents value of benefit, not cost. City budget already includes funding for hours worked.