HomeMy WebLinkAboutAgenda Bill 4.B 03/07/2011LU�Ll
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DATE: March 7, 2011
TO:
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A gevi� ItP.wv #4.3
Honorable Mayor and Members of the City Council through City Manager
John C. Brown, City Manager
SUBJECT: Presentation and Discussion of Financial Impact Report on the City's Future Costs
of Offering Two Years Additional Service Credit under PERS to Miscellaneous,
Police, and Fire Employees; and, Possible Direction to Grant Another Designated
Period for Two Years Additional Service Credit.
RECOMMENDATION
It is recommended that the City Council:
1. Consider the financial impact report which indicates the "additional employer
contributions" which will be required in the future for providing the two years service
credit.
2. Place on the Agenda for Monday, March 21, 2011, a resolution offering two additional
years of service credit under PERS to Miscellaneous, Police, and Fire employees; and,
designate the window period for the eligible employees to retire.
BACKGROUND
The City of Petaluma continues to face financial shortfalls and impending layoffs. To reduce the
projected gap between revenue and expense, and to mitigate potential layoffs, City staff is
recommending that the City Council consider the option of offering two years of additional
service credit, which is an added benefit, to eligible employees opting for retirement. Eligible
employees must have at least 5 years of service credit in PERS and be age 50 or older.
The City Council adopted Resolution 2008 -202, on October 27, 2008, which opened a window
period between October 28, 2008 to January 25, 2009, during which eligible employees could
opt for retirement and receive two years additional service credit in PERS. Twenty employees
retired and received the service credit. (14 Miscellaneous and 6 Safety). In May of 2009, the
City Council adopted Resolution 2009 -064 leading to an additional offering of the 2 year service
credit, in which 9 employees opted for retirement (8 Miscellaneous and 1 Safety). These options
were among many budget reduction strategies that the City Council took in order to achieve a
balanced budget while mitigating potential layoffs.
Agenda Review:
City Attorney Finance Director City Manager v
DISCUSSION
The City of Petaluma continues to face challenging economic conditions and must develop
significant budget reduction strategies, including the potential of employee layoffs. In addition
to a variety of other budget reduction initiatives, including the possible reduction in salaries
and /or benefits, staff is recommending that the City Council approve the retirement incentive
option of offering two years of additional service credit.
If the City Council chooses to offer the two years additional service credit to all eligible
employees, the costs to provide this benefit needs to be made public for at least two weeks prior
to the action. Pending Council direction, staff recommends that the window period be from
March 23, 2011 to June 30, 2011. This requires making the costs of the action public for at least
two weeks, and would require final approval of the program at the Council's meeting of March
21. Tonight's noticed agenda item constitutes the required public disclosure of program costs. As
a side note, PERS is requiring all employers to close window periods by June 30, 2011 due to the
implementation of a new software program. Thus, if the City of Petaluma does not designate the
window period as noted, it is not known at this point when the service credit could next be
offered, because at least a 90 -day window period is required. PERS has advised that when the
new system is in place, scheduled for September 2011, they plan to begin excepting window
periods but they are unable provide a specific date.
Councilmembers have asked about alternatives to offering the service credit on a city -wide basis.
The City may specify target classifications for offering the service credit; for example, a
classification in a Department or Division. All employees in that classification, designated in the
Department or Division may retire. It should be noted that, if the City opts to specify one of these
options, the financial public disclosure at tonight's meeting will not meet the required public
disclosure of those program costs. The City would need to analyze that data and present those
program costs in a special meeting of the City Council if the March 23 through June 30, 2011
window period is to be offered.
While the intention in offering the service credit is to leave vacancies unfilled, some vacancies
would need to be filled, decreasing the resulting savings. Offering the service credit to all
eligible employees and having interested employees retire results in some savings, however,
even if some of those positions are filled. Typically an employee who retires is at Step 5 of the
salary range and has a higher level leave accrual rate due to service time. A new employee
would be hired at Step 1, a 20% difference and would have a lower leave accrual rate.
Additionally, offering the service credit to all eligible employees extends the benefit equally to
all, which may increase employee morale.
The attached Financial Impact Report outlines the estimated costs and provides information on
the estimated present value of the additional employer contributions that will be required in the
future for providing the two years additional service credit.
In an informal survey of eligible employees, 18 expressed interest in retiring. That number could
increase or decrease. If the 18 interested employees choose to retire within the window period,
$1,055,181 is the estimated present value of the additional employer contributions that will be
required in the future for providing the two year service credit. The estimated annual increase in
the employer contribution rate is $79,696. If the 18 interested employees retire and all positions
remain vacant, the estimated annual reduction in salary and benefit costs would be $ $2,239,604.
There is a one -time cost of leave payouts, which is estimated to be $514,122. The estimated cost
savings minus leave payouts if the 18 employees retire is $ $1,725,482. Estimated savings of
this amount to the General Fund is $1,438,338. It is anticipated that 13 of the 18 positions would
remain vacant and 9 F.T.E's are allocated to the General Fund for an estimated net savings
exceeding $800,000 in year one, and exceeding $1.1 million in each subsequent year. The
attached reports provide cost analysis that includes the prior two offerings, and detailed estimates
pertinent to the current proposal.
In order to proceed with the two years additional service credit option, the Council must adopt a
resolution implementing the program. Implementing the program at the earliest possible date
will result in the maximum savings in salary and benefit costs, thus it is also recommended that
approval of the program be given at the Council's meeting of March 21, 2011. It is not
anticipated that the two years additional service credit program will be recommended subsequent
to this opportunity within the time frame of the current Five Year Sustainability Plan.
FINANCIAL IMPACTS
See Attachment 1 Financial Impact Report. Attachment 2 is for informational purposes only and
provides cost savings estimates from the previous program offerings.
ATTACHMENTS
1. Financial Impact Report for Two Years Additional Service Credit.
2. Financial Impact Actual Employees Who Retired
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Attachment 1
City of Petaluma Financial Impact Report for Two Years Additional Service Credit
March 7, 2011
There are 88 employees eligible to retire and receive the two years additional service credit. Eligible
employees have at least five years of service credit in CalPERS and are age 50 or older. Attachment A
provides a listing of all positions in the City with employees eligible for the service credit.
The added cost to the retirement fund if all eligible employees retire with the service credit is as follows:
Employee Group Safety Employees Miscellaneous Employees Total
# Employees Eligible 13 75 88
Present value of $1,320,072 $2,699,676 $4,019,748
of additional employer
contributions
$4,019,748 is the estimated present value of the additional employer contributions that will be
required in the future for providing the two years service credit if all 88 employees choose to retire
within the 100 -day window period (March 23, 2011 to June 30, 2011).
The cost of the two years additional service credit will be included in the City's employer contribution rate
in the fiscal year starting two years after the end of the designated retirement period. That means the cost
would be in the City's employer rates in fiscal year 2013/14.
It is estimated that the employer rates would increase an additional amount as follows:
Safety Employees Miscellaneous Employees Total
Employer Rate Increase .83% 1.60%
Estimated Cost
of Increased Rates $99,703 $203,903 $303,606
Status of Retirement Program as of June 30, 2009 — CalPERS Actuarial Report
Safety Employees
Miscellaneous Employees
Total
Employer Rate 2008/09
Actuarial Value Assets
34.073%
95,254,855
12,941%
65,534,272
$160,789,127
Funded Status
56.20%
64.00%
Unfunded Liability
28,343,434
9,049,191
$37,392,625
Present Value of
Service Credit
1,320,072
2,699,676
$4,019,748
Revised Unfunded Liability
With Service Credit
$29,663,506
$11,748,867
$41,412,373
This estimated present value of additional contribution may differ from the actual present value for two
reasons:
1. Some of the employees who are eligible to retire and receive the two years service credit (and who
are included in the preceding estimate) may choose not to retire; and,
2. There may be additional cost to the City (called an "experience loss ") if the total number of
employees retiring in the fiscal year exceeds the number predicted by the actuarial assumptions.
An experience loss occurs very often when the two years service credit is offered because some
employees retire who would have otherwise waited until later years.
The City informally surveyed all 88 eligible employees and asked who would be seriously interested in the
taking the service credit and retire.
Eighteen (18) eligible employees said they would be seriously interested in taking the service
credit and retiring. Attachment B provides a listing of the number of employees by department
who expressed interest in the service credit and retirement.
The added cost to the retirement fund, if only those who expressed interest retire with the service credit, is
as follows:
Employee Group Safety Employees Miscellaneous Employees Total
# Employees Interested 7 11 18
Present Value $690,965 $364,216 $1,055,181
$1,055,181 is the estimated present value of the additional employer contributions that will be
required in the future for employees interested in the two years service credit.
The cost of the two years additional service credit will be included in the City's employer contribution rate
in the fiscal year starting two years after the end of the designated retirement period. That means the cost
would be in the City's employer rates in fiscal year 2012/13. The increase in the employer contribution rate
may continue for as long as 20 years.
It is estimated that the employer rates would increase an additional amount as follows:
Rate Increase
Estimated Cost
of Increased Rates
Safety Employees
.43%
$52,188
Miscellaneous Employees
.22%
$27,509
Status of Retirement Program as of June 30, 2009 — CaIPERS Actuarial Report
Safety Employees Miscellaneous Employees
Employer Rate 2011/12 34.073% 12.941%
Actuarial Value Assets 95,254,855 65,534,272
Total
$79,696
Total
$160,789,127
Funded Status
56.20%
64.0%
Unfunded Liability
28,343,434
9,049,191 $37,392,625
Present Value of
Service Credit
690,965
364,216 $1,055,181
Revised Unfunded Liability
With Service Credit
$29,034,399
$9,349,582 $38,447,806
L
If the City offers the two years additional service credit and all 88 employees eligible do retire, the City
would save the following estimated amount if positions remain vacant for one year and they are not
staffed. Note: the amount below is an annual amount. The majority of those eligible are not expected to
retire during the 100 -day window period.
Employee
Group
# of
Employees
Annual Salary & Other
Compensation
Reported to CalPERS
Benefit and Other
Payroll costs
associated with
Total Annual Cost
of Employee
Group
$312,035
Miscellaneous
11
employment
Total
Safety
13
$1,567,527
$800,200
$2,367,727
Miscellaneous
75
$5,653,506
$1,772,444
$7,425,950
Total
88
$7,221,033
$2,572,644
$9,793,677
If all of the 18 employees interested in retiring do retire the City would save the following estimated amount
if positions remain vacant for one year and they are not staffed. Note: the amount below is an annual
amount. It is unknown who would actually retire.
Employee
Group
# of
Employees
Annual Salary & Other
Compensation
Reported to CalPERS
Benefit and Other
Payroll costs
associated with
Total Annual Cost
of Employee
Group
$312,035
Miscellaneous
11
employment
Total
Safe!
7
$813,251
$436,779
$1,250,030
Miscellaneous
11
$752,668
$236,906
$989,574
Total
18
$1,565,919
$673,685
$2,239,604
If all 18 employees retire the City would have to make a cash payout of employee leaves as follows:
Employee
Group
# of
Employees
Cost of Leave Payouts
Safety
7
$312,035
Miscellaneous
11
$202,087
Total
18
$514,122
The estimated cost savings minus leave payouts if the 18 employees retire is $1,725,482. Estimated
savings of this amount to the General Fund is $1,438,338.
If all 18 employees either opt for retiree health benefit and /or receive the 20 -year cash retiree benefit the
City will incur an additional annual cost of $27,779.
All costs and savings are estimates only and based upon current known data. Actual costs and savings
will depend on actual data.
The City's annual valuation report for the fiscal year that begins two years after the end of the designated
period will show the amount of the increase in the employer contribution rate resulting from the two years
service credit.
The City can pay off the cost of the two years service credit at anytime.
An employee cannot receive unemployment insurance payments during the window period.
An employee may not retire the first day of the window period. If the retired employee subsequently re-
enters CalPERS membership, the additional service credit is forfeited.
To implement the two years additional service credit the City Council must:
1. Have a CalPERS contract amendment in effect that provides for the two years additional service
credit.
2. Designate a window period of not less than 90 or more than 180 days in length in which
employees must retire.
3. Designate position(s) by job classification, department, or other organizational unit eligible for the
service credit.
4. Certify that the City is electing to be subject to the provisions of the service credit due to
mandatory transfers, layoffs and /or demotions that constitute at least one percent of the job
classifications, department, or organizational unit. The City has already met this requirement with
the layoffs in the Community Development Department.
5. Certify that the City intends to leave at least one vacancy in any position in any department or
organizational unit unfilled.
6. Certify that the City has complied with the provisions of Government Code Section 7507 and
disclosed the additional employer contributions and the funding of those employer contributions at
a public meeting.
Attachments
A - Listing of All Employees Eligible by Position
B - Listing of Employees Interested by Department
Attachment A - Listing of All Employees Eligible By Position
Department
No. of
positions
Title
City Clerk
1
City Clerk
City Manager
1
Cit Manager
1
Executive Assistant to City Manager
Building Services
1
Building Inspector I
1
Senior Building Inspector
Housing
1
Housing Administrator
1
Housing Program Specialist
Human Resources
1
Human Resources Manager
1
Human Resources Assistant 11
Information Technology
3
Information Technology Specialist II
1
Information Technology Manager
Recreation
1
Part Time Tiny Tots Teacher II
1
Recreation Coordinator
2
Recreation Supervisor
Risk Management
1
Secretary
Finance
1
Administrative Technician
1
Commercial Services Manager
1
Mail Services Assistant
1
Office Assistant 2
Fire
1
Administrative Assistant
1
Fire Battalion Chief
1
Fire Battalion Chief — Emergency
Medical Services
2
Fire Captain
1
Fire Chief
2
Fire Engineer
1
Fire Engineer/Paramedic
2
Firefighter
1
Firefighter /Paramedic
1
Fire Marshal
Police
1
Administrative Assistant
1
Animal Control Officer
3
Community Service Officer
3
Police Records Assistant II
1
Police Records Supervisor
1
Police Sergeant
1
Public Safety Dispatcher
1
Secretary
1
Senior Parking Enforcement Officer
Animal Services
1
Shelter Supervisor
Public Works
1
Administrative Assistant
1
Budget Grants /Project Manager
1
Attachment A - Listing of All Employees Eligible By Position
Public Works - continued
1
Equipment Maintenance Lead Worker
1
Facilities Maintenance Worker II
1
Inspection Supervisor
1
Secretary
1
Senior Civil Engineer .
Airport
1
Airport Division Manager
Parks
1
Parks Maintenance Foreworker
1
Park Maintenance Lead Worker
7
Park Maintenance Worker II
1
Parks & Landscape Manager
Streets
2
Public Works Crew Supervisor
1
Public Works Supervisor
2
Street Maintenance Worker II
Traffic
2
Traffic Signal Street Light Technician II
Water Resources &
Conservation
1
Engineering Technician II
1
Secretary
1
Senior Civil Engineer
1
Utility Manager
Ellis Creek
1
Administrative Technician
Water Field Office
1
Electrical Maintenance Worker II
2
Senior Engineering Technician
1
Utility Service Worker 1
2
Utility Service Worker II
1
Utility Service Worker III
1
Utility Supervisor
1
Utility Technician
Total
88
Attachment B - Listing of Employees Interested by Department
Department
Number
of
Positions
Title
City Manager
1
Miscellaneous
Finance
1
Miscellaneous
Fire
6
Safety
Police
1
Safety
3
Miscellaneous
Public Works
5
Miscellaneous
Water Resources - Field Office
1
Miscellaneous
Total
18
Attachment 2
Financial Impact of Actual Employees Who Opted to Retire — October 28, 2009 to January 25, 2009
Twenty (20) eligible employees opted to take the service credit and retire in the window period.
Attachment A provides a listing of the employees by department who opted for service credit and
retired.
The added estimated cost to the retirement fund for the twenty 20 employees that did retire with the
service credit is as follows:
Employee Group
Safety Employees
Miscellaneous Employees
Total
# Employees Retired
6
14
20
Present Value
$689,637
$513,133
$1,202,770
$1,202,770 is the estimated present value of the additional employer contributions for employees
that opted for the service credit and retired.
The cost of the two years additional service credit is included in the City's employer contribution rate in
fiscal year 2011/12. The increase in the employer contribution rate may continue for as long as 20 years.
It is estimated that the employer rates increased an additional amount as follows:
Safety Employees Miscellaneous Employees
Rate Increase .43% .25%
Estimated Cost
of Increased Rates $52,087
$38,756
Total
$90,843
Financial Impact of Actual Employees Who Opted to Retire — October 28, 2009 to January 25, 2009
Nine eligible employees opted to take the service credit and retire in the window period.
Attachment B provides a listing of the employees by department who opted for the service credit
and retired.
The added estimated cost to the retirement fund of the 9 employees that did retire with the service credit is
as follows:
Employee Group Safety Employees Miscellaneous Employees Total
# Employees Retired 1 8 9
Present Value $86,849 $290,307 $377,156
$377,156 is the estimated present value of the additional employer contributions for nine
employees that opted for the service credit and retired.
The cost of the two years additional service credit will be included in the City's employer contribution rate
in the fiscal year starting two years after the end of the designated retirement period. That means the cost
will be in the City's employer rates in fiscal year 2012/13. The increase in the employer contribution rate
may continue for as long as 20 years.
It is estimated that the employer rates will increase an additional amount as follows:
Safety Employees Miscellaneous Employees Total
Rate Increase .06% .16%
Estimated Cost
Of Increased Rates $6,560 $21,927 $28,486
Attachments
A - Listing of All Employees Receiving Service Credit for the Window Period 10/28/08 to 01/2509.
B - Listing of All Employees Receiving Service Credit for the Window Period 05/25/09 to 08/22/09.
Attachment A - Listing of Employees Receiving the Service Credit
For the Window Period 10 -28 -08 to 01 -25 -09
Department
Number
of
Positions
Title
Finance
1
Accountant
Fire
1
Fire Battalion Chief
1
Fire Captain
1
Fire Marshal
1
Secretary
Police
1
Community Service Officer
1
Police Chief
1
Police Lieutenant
1
Police Officer
1
Public Safety Communications Manager
Public Works
1
Assistant in Civil Engineering
1
City Engineer
2
Custodian
1
Supervising Custodian
1
Street Maintenance Worker — Docks & Bridges
Risk Management
1
Risk Manager
Water Resources &
Conservation - Field Office
1
Administrative Assistant
1
Utility Service Worker II
1
Utility Supervisor
Total
20
Attachment B - Listing of Employees Receiving Service Credit
For the Window Period 05 -25 -09 to 08 -22 -09
Department
Number
of
Positions
Title
Animal Services
1
Animal Services Manager
Finance
1
Finance & Accounting Manager
Fire
1
Firefighter /Paramedic
Police
1
Public Safety Dispatcher
Public Works
1
Office Assistant II
Risk Management
1
Risk Claims Administrator
Water Resources & Conservation
- Field Office
1
Customer Service Representative
1
Secretary
1
Utility Technician
Total
9
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