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Home My WebLink About2009-02-24; City Council; Minutes (2)CITY OF CARLSBAD CITY COUNCIL WORKSHOP SPECIAL MEETING Safety Center 2560 Orion Way Carlsbad, CA 92008 Tuesday, February 24, 2009 8 a.m. to conclusion of business at approximately 12:00 noon MINUTES CALL TO ORDER: Mayor Lewis called the meeting to order at 8:02 a.m. ROLL CALL: Mayor Lewis, Mayor ProTem Kulchin, Council Members Hall, Packard and Blackburn. 1. Council discussion on Council Member reports on regional roles and assignments, as necessary, including: Blackburn Buena Vista Lagoon JPC Chamber of Commerce Liaison City/School Committee Encina Joint Powers (JAC) Encina Wastewater Authority North County Dispatch Joint Powers Authority (alternate) No report. Packard Buena Vista Lagoon JPC City/School Committee North County Transit District Board of Directors *North County Transit District Planning Committee League of California Cities - SD Division North County Dispatch Joint Powers Authority No report. Hall Chamber of Commerce Liaison SANDAG Board of Directors SAN DAG Executive Committee SANDAG Transportation Committee No report. Kulchin CalCoast Board of Directors Carlsbad ConVis (alternate) Encina Joint Powers (JAC) Encina Wastewater Authority (EWA) North County Transit District (alternate) City Council Workshop February 24, 2009 *San Diego Authority for Freeway Emergencies (SAFE) SANDAG Board of Directors (2nd alternate) *SANDAG Shoreline Preservation Committee No report. Lewis LAFCO Cities Advisory Committee North County Mayors and Managers SANDAG (1st alternate) San Diego County Water Authority Board of Directors Mayor Lewis noted that the County Water Board is considering a move to Phase 2 of water rationing. Requests to Speak on a listed item: A total of 15 minutes is provided. Please submit a speaker card indicating the item you wish to address. Comments/speakers are limited to three (3) minutes each. No Public Comment. A handout entitled City Council Study Session Pension Reform, February 24, 2009 is on file in the Office of the City Clerk. WORKSHOP ITEM FOR DISCUSSION 1. Discussion of procedures for potential pension reform. Mayor Lewis suggested that the City adopt a two-tiered pension system and put this question regarding pension reform to the public, written as a ballot measure, in 2010. He also suggested that a seven member committee of citizens be formed, by Council appointment, to study pension reform. Lisa Hildabrand, City Manager, noted that the item under consideration was brought forward as a result of the current recession. She stated that when stock prices fall CalPERS rates rise. Human Resources Director Julie Clark gave an overview of the materials to be covered in the Workshop. She introduced the speaker, John Bartel of Bartel Associates LLC. In response to Council, Ms. Hildabrand agreed that the percentages shown in Slide 3 could be converted to dollar amounts. In response to Council, Ms. Clark confirmed that fewer qualified people are going in to Public Service careers. Mr. Bartels discussed pension terminology, CalPERS, CalPERS investments, vested rights, CalPERS retirement formulas, reciprocity, and Safety and Miscellaneous benefits. At 9:20 a.m. the Mayor called a recess. All Council members returned to the Workshop at 9:29 a.m. 2 | Page City Council Workshop February 24, 2009 Mr. Bartels continued his presentation and discussed the impact of recent CalPERS investment returns on future rates to be paid by the City. He further described how CalPERS actuaries progressed from the "Old" 5-year 10% funding corridor to the "New" 15-year 20% funding corridor. Mr. Bartels added that he believes CalPERS will fare better than other "stand alone" plans. Mr. Bartels reviewed the League of California Cities goals regarding pension reform. He also suggested that Council list the goals that they are seeking from future pension reform. At 10:36 a.m. the Mayor called a recess. All Council members returned to the Workshop at 10:50 a.m. Mr. Bartels continued his discussion and spoke about non-PERS options such as PARS programs or other stand alone programs. In response to Council, Mr. Bartels noted that defined benefit options rather than defined contribution options were the least costly to run. Requests to Speak: Continuation of Requests to Speak (if necessary) ADJOURNMENT Mayor Lewis adjourned the meeting at 11:34 a.m. Lorraine M. Wood, Certified Municipal Clerk 3| Page City Council Study Session Pension Reform February 24, 2009 Agenda I Introductions » John Bartel, Bartel Associates, LLC • Julie Clark, Human Resources Director I Understanding Pension Benefits • Why We Offer Benefits • Terminology « CalPERS I Thinking About Goals » Principles • Goals I Options & Example 2 Febniary 24, 2009 Why We Offer Benefits Attract and retain experienced and qualified workforce • Steady number of retirements • Fewer qualified people going I into public service careers • Fewer long-term employees, especially in non-safety jobs Remain competitive within i public agency market Total Compensation • Salary • Retirement » Health Insurance • Other* •Other includes Items such as overtime and misc. benefits (e.g., Medicare) February 24, 2009 Pension Terminology Defined Benefit Plan • Guaranteed annual pension based on retirement age, years of service and salary, for example • Public Sector-CalPERS • Private Sector - Generally only very large employers Defined Contribution Plan • Employer contribution is a fixed dollar amount; benefit based on contributions and investment earnings • Public Sector - 457 Plan • Private Sector - 401 (k) Plan February 24, 2009 Pension Terminology (cont.) Vested Rights: As determined by CA Supreme Court • Employee must be eligible to continue earning benefit formula in place when hired. • Cannot be reduced or eliminated unless traded for something of equal or greater value. • Individual right, can not be negotiated away. February 24. 2009 Pension Terminology (cont.) CalPERS Retirement formulas • Options vary based on » Type of employer [State, School, Local Public Agency] • Occupation [Miscellaneous (office and others), Safety] • Contract between Agency and CalPERS • Benefit is: • Service x Final Average Compensation x Benefit Factor ti-ium Febmary ,4. 2009 CalPERS Retirement Benefit Available Public Agency Formulas Safety (Police and Fire) 2°o a 55 Safety Benefit Factor Comparison - 2% @ 55 -»- 2% ® 50 -•- 3% ® iS -A- 3% @ SO | 3.0% 1.5% 1.0% 50 51 52 53 54 55 56 Retirement Age 58 59 60 Benefit Cap: Safety = 90% February 24, 2009 CalPERS Retirement Benefit Available Public Agency Formulas ' Miscellaneous 3°o it 60 .:>% a :o 2 °o a 60 Miscellaneous Benefit Factor Comparison -2%@60 -»-2%@55 -«-2.5%(gS5 3.0% J2.0% 10% 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Retirement Age Benefit Cap: Miscellaneous has NO cap February 24, 2009 Pension Terminology (cont.) • Contribution Rate • Sum of the "Normal Cost" and "Amortization" Normal Cost • "Value" of benefits earned by active employees during current fiscal year • Employee & Employer component • Normally stable from year-to-year Amortization • Current year payment of short fall (or excess of) assets compared to liability • Can fluctuate from year to year Febmary 24, 2009 CalPERS Retirement Cost Normal Cost + Amortization * Some or all of the employee rate may be paid by the employer Febmary 24, 2009 BEST ^fe0^ ^S^ffl^ P* Impact of Recent Investment Returns on Future Rates -20% Return -25% Return -30% Return Range of Estimated 2-4 Percentage Point 4-7 Percentage Point 6-10 Percentage Point Rate Changes Increase Increase Increase 08/09 fiscal year: CalPERS had -23.0% return through December 31, 2008 February 24, 2009 ( fy\) Thinking About Goals February 24, 2009 14 League of California Cities Recommended General Pension Reform Principles "Any serious discussion of public pension reform must begin with a set of principles/goals...." • Primary Goal - Provide full-career employees with benefits that maintain standard of living into retirement • Set benefit level: • Fair & adequate and • Fiscally sustainable for employers and taxpayers • Base all pension benefits on proper actuarial work 15 February 24. 2009 League of California Cities Recommended General Pension Reform Principles (cont) • View pensions in context of overall compensation. Changes in retirement benefits must be evaluated in concert with other compensation. • Maintain reciprocity • Address perceived abuses: Plans resulting in benefits that are higher than necessary • Managing pensions is shared responsibility between: • System • Employees • Employers 16 February 24. 2009 League of California Cities Reform Recommendations Maintain defined benefit plan as central benefit Rollback/repeal excessive benefit plans Benefit formulas » Safety 3% @55 offset by 50% of Social Security 90% cap • Miscellaneous 2% @55 offset by 50% of Social Security 100% cap • Average of highest 3 years 17 February 24, 2009 League of California Cities Reform Recommendations (cont.) Alternatives to defined benefit for non-career job classifications Give employers flexibility to determine when part-time employees are entitled to pension benefits Rate volatility • Keep within reasonable distance of normal cost » Establish reserve funding Shared risk » If employer rate exceeds normal cost, employees should be expected to share some financial responsibility 18 Febmary 24, 2009 League of California Cities Reform Recommendations (cont.) Disability retirement • Full disability benefits should be retained for those who are injured and can not work in any capacity • Restrict disability benefits for those able to work (in same or similar job) after work-related injury Retain • Reciprocity and » Vested rights 19February 34. 200") League of California Cities Reform Recommendations (cont.) Tiered plans • Minimize disparity between current and prospective employees * Consider changes in context of other compensation issues Oversight • Agencies that fail to contribute the Annual Required Contribution should be subject to oversight * CalPERS Board membership should be changed: Better employee/employer balance More public agency representation February 24, 2009 Council Goals? Reduce costs « How much? • Short term? • Long term? Mitigate contribution (budget) fluctuations Share the risk/reward with employees Attract and retain (who?) • Younger or older » Shorter service or longer service February 24, 2009 21 Council Goals? (cont.) Encourage certain behavior • Retire at later ages Have increased control over retirement benefit » Design » Cost » Investments Incorporate League Principals? Other? February 24, 2009 22 Options & Example Options • Legislative Changes • Within CalPERS • Outside of CalPERS Example « City of San Diego 25 February 24. 2009 Legislative Changes Limited options without changes in current law Three options » Legislation » State ballot initiative » City ballot initiative 26February 24. 2009 Options for Legislative Change 1 Change vested rights with Constitutional Amendment 2 Allow prospective benefit changes in CalPERS 3 Change (CalPERS) Board make up to include more public agency representation 4 Rollback/eliminate more generous formulas 5 Move from defined benefit to defined contribution as primary benefit for select classifications L>Jy Februarv 24. 2009 27 Options for Legislative Change (cont.) 6 Other changes as recommended by League 7 Establish Miscellaneous benefit cap (currently none) 8 Decrease Safety benefit cap (currently 90%) 9 Create new lower benefit formulas 10 Move from defined benefit to defined contribution as primary benefit for all classifications February 24. 2009 28 Options Within CalPERS Option 1 Require current and/or new employees to pay more of employee rate Cost Savings Immediate 2 If reporting EPMC as PERSable wages, stop Immediate 3 "Cost sharing" - Have employees pay portion Immediate of employer rate - AFTER employees are paying entire employee rate - This option can not be imposed Note: All changes to retirement benefits are subject to the bargaining process 29 February 24. 2009 Options Within CalPERS (cont.) Option 4 Change "ancillary benefits" for new hires - Highest single year to average of highest 3 years - Post retirement survivor allowance Cost Savings Long term 5 Time in grade exception - new employees Long term pay more/all of the employee rate during first five years 6 Create a 2-tiered system- lower formula for Long term new employees (10-20 yrs) Note: All changes to retirement benefits are subject to the bargaining process February 24, 2009 30 Non-CalPERS Options More control over plan design • Does not eliminate vested rights Can direct plan investments Likely more costly for same benefit Typically done by larger agencies and counties Rates may be more volatile High legal and administrative cost More common 30+ years ago 31February 24, 20OT Non-CalPERS Options 1 PARS defined benefit / self-funded retirehierit plan 2 Defined Contribution a. City contribution to 457 deferred comp. plan b. 401 (a) plan 32 February 24, 2009 Pension Reform Example City of San Diego Made changes only for non-safety • 80% benefit cap (decreased from 90%) » 3-year highest compensation period (decreased from single highest year) • 2-tiered system July 2009 \«C ill U i'tire me nt 65 55 Benefit I uolor 2.8% 2.5% Benefit I netor 2.6% 1.0% DROP interest crediting rate lowered from 7.75% to 3.54% February 24, 2009 33