City and county leaders recently released a policy document recommending a two-tier pension system. The new tier would only apply to new employees, and all the cities and the county would offer similar benefits.
"The consensus is that the pension issue has reached a point where it is at a critical stage," said Tracy City Manager Leon Churchill. "Local governments are examining all costs of doing business, and what's on the horizon is pension costs."
But at least one union leader said it's not the pension system that has hurt cities; it's poor fiscal management.
"When things were good and people were spending money like crazy, you didn't hear about pension reform. This is a knee jerk reaction to a down economy. Things will turn around," said Lodi Professional Firefighters President Brad Doell.
Over the years, Lodi City Manager Blair King said cities have increased benefits packages to attract new employees.
For example, the city of Lodi's miscellaneous employees receive 2 percent at 55, but Manteca's employees receive 2.7 percent at 55. Lodi has lost several employees to Manteca because of the differences in plans, King said.
Lodi doesn't have the money to match Manteca, he said, but at the same time, Manteca feels it cannot sustain its pension program.
Throughout the county, cities increased pension plans because up until now it has been possible and affordable to do so, Churchill said.
But with the market crashing, the California Public Employees' Retirement System took a serious loss, which raised concerns about the state's pension plans being sustainable. This prompted San Joaquin city managers to meet and discuss possible solutions.
In the document, city managers recommended all cities raise the age at which employees can retire, and cut back on how much they’ll earn.
At the moment, Tracy police officers and firefighters, and many in other local cities as well, can retire at age 50 with up to 90 percent of their highest year’s earnings, not counting overtime. Their annual retirement payout is 3 percent of their salaries for each year worked.
Officials propose to change that for police officer and firefighters to 2.5 percent of their salaries, and to raise the age of retirement to 55.
For other employees, officials talk about cutting their payout to 2 percent from 2.5 percent of their salaries, and raising the retirement age from 55 to 60.
In Tracy, the city pays 100 percent of the retirement costs for each employee, including the employees’ share of their own retirement. For police officer and firefighters, Tracy puts .33 cents into their retirement plan for each $1 they’re paid in salaries and wages.
Overall, Tracy spends $9 million a year on employees’ pensions.
The main goal among city managers is to start a discussion on how to cap costs and provide some stability in anticipating costs.
Manteca City Manager Steve Pinkerton said the city managers are focused on lobbying the legislature to make sure it will be feasible to set up a two-tier system. At the same time, it is important to let all the unions and other labor groups know that this is the direction the cities are headed in when the contracts are up.
"It's going to take a long time for any of these changes to have a direct financial impact, but you have to start somewhere," Pinkerton said.
Some of the other changes the city managers are recommending include having employees contribute at least 5 percent of their salaries to pensions.
But a consequence of having new employees contribute to their pension is that they might try to negotiate for higher salaries, he said.
Also, the plan suggests pensions be based off the average salary of the highest three years of pay, which Lodi already does. Other cities will base pensions off the highest year of pay, which can lead to substantially inflated pensions.
The head actuary of the state’s public employee retirement system, CalPERS, Ron Seeling, bluntly said pension costs have to be cut because payouts are becoming unaffordable.
“I don't want to sugarcoat anything," Seeling said at an August seminar. "We are facing decades without significant turnarounds in assets, decades of — what I, my personal words, nobody else's — unsustainable pension costs.”
Firefighters could fight back
As a Lodi firefighter, Doell said he is often putting his life on the line to keep the city safe. Increasing the retirement age to 55 will cost the city more because there will be more injuries, he said.
“It's a very demanding job doing what we do at the fire department. ... Based on what I've seen, the older you get the more injuries you get," he said.
Doell also believes that if all the cities in the county lower pension benefits, firefighters will take jobs at other agencies. Generally, throughout the state, he said public safety pensions are 3 percent at 50, so firefighters will be considering that when picking a city to work in.
“There is no shortage of people who want to be firefighters,” Doell said. "The question is whether we will retain them.”
Regarding Seeling's comments about the pension system being unsustainable, he does not believe they were directed at individual cities.
“He's telling the PERS board members to look at these things to diversify their investments, so we can sustain retirement. His comment was cautionary," Doell said.
Also, by setting up a two-tier system, it could create discontent among employees who are doing the same job for different benefits, he said.
He believes cities that have made a commitment to employees should stick with the agreement, especially because employees made pay and benefit concessions during negotiations to receive these pension benefits.
“I think that because of the economic times we are in, everybody is looking to place blame. ... The city made an obligation to have enough money to fund pensions," Doell said.
Not just a local issue
One of the reasons it is important to discuss pension reform at the local level is because reform is gaining momentum throughout the state, Churchill said.
“If local governments don't do it, local voters are going to," he said.
Churchill believes there are about half a dozen counties looking at pension reform, and San Diego County recently passed a two-tier system.
Statewide, California Pension Reform, a nonprofit organization, is working to get a initiative on the ballot that will limit all public agency pensions.
Organization president Marcia Fritz said a statewide initiative is necessary because it is “incredibly difficult” to do pension reform at the local level.
“The people on councils and fire boards are made up of candidates who were put there by the unions,” she said. “The only way we can handle this is for citizens to take back control, and the only way to do that is through a vote.”
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