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SR 10-25-2011 3F10 �Wr City of City Council Report Santa Monica City Council Meeting: October 25, 2011 Agenda Item: � _ To: Mayor and City Council From: Donna Peter, Director of Human Resources Subject: Resolution Authorizing the City Manager to Execute a Memorandum of Understanding with the City's Miscellaneous (Non- Safety) Bargaining Units Pertaining to Retirement Benefits Recommended Action Staff recommends that City Council adopt the attached Resolution authorizing the City Manager to execute a Memorandum of Understanding (MOU) regarding the setting of the terms and conditions of employee -paid California Public Employees' Retirement System (CaIPERS) optional benefits between the City and the Executive Pay Plan participants and the bargaining units that represent the City's miscellaneous (non - safety) employees. Executive Summary The City has negotiated with the Coalition of City of Santa Monica Employees, which represents miscellaneous employees and the participants of the Executive Pay Plan. As a result, a new umbrella agreement has been ratified by the memberships of the Coalition that establishes a second tier of retirement benefits for employees eligible for CaIPERS membership and who are hired on or after July 1, . 2012. The changes are intended to reduce the future impact of retirement benefits costs to the City. Background The City of Santa Monica contracts with the California Public Employees' Retirement System (CaIPERS) to provide retirement plans for employees eligible for membership. As a contracting agency, the City may amend its contract(s) to provide various optional benefits made available by CaIPERS. In order to address and mitigate future expenditures towards employee benefits, the City's miscellaneous (non- safety) employees and Executive Pay Plan participants 1 (Coalition of Santa Monica City Employees) and the City have negotiated an amendment to the Memorandum of Understanding (Umbrella Agreement), Contract No. 8650 (CCS), previously executed on November 3, 2006 (City Council Report). The new amendment establishes a second tier of retirement benefits that would be applicable to eligible employees hired on or after July 1, 2012. Discussion Employees hired before July 1, 2012 would remain eligible for the first tier of retirement benefits. They would continue to be covered by the optional CalPERS benefits currently in effect and set forth in Section 21354.5 of the California Government Code, which establishes a 2.7% @ 55 full formula for local miscellaneous members. They would continue to use the 12 highest paid consecutive months when determining the average monthly pay rate to apply in calculating retirement benefits pursuant to Government Code Section 20042. The City would continue to implement Government Code Section 20636(c)(4) pursuant to Section 20691 to pay and report the value of Employer Paid Member Contributions (EPMC). Current employees are sharing the cost of additional retirement benefits by reimbursing the City 6.7% of the earnings reportable to CalPERS on a post -tax basis. This cost sharing shall continue; however, effective July 1, 2011, the reimbursements would be made through payroll on a pre -tax basis. Employees hired on or after July 1, 2012 would be eligible for the second tier of retirement benefits. They would be covered by the optional CalPERS benefit, set forth in Government Code Section 21354, which establishes a 2.0% @ 55 full formula for active local miscellaneous members. Employees in the second tier would use the 36 highest paid consecutive months when determining the average monthly pay rate to apply in calculating retirement benefits pursuant to Government Code Section 20037. The City would not contribute the mandatory 7% employee's contribution of CaIPERS- reportable compensation. Employees would contribute this employee contribution on a pre -tax basis. Consequently, the paying and reporting of Employer Paid Member Contributions would cease. The terms and conditions stated above for employees in 2 the second tier would be effective July 1, 2012. Other optional CalPERS benefits currently in effect would apply to employees in both tiers. The City's miscellaneous employees have ratified the changes in the terms and conditions established for the two tiers of employees in an effort to assist in alleviating the impact of employee benefits costs the City would face in the future. The City would be requesting to amend its contract with CalPERS to reflect the noted changes. CalPERS would determine the specific effect these changes may have to the City's CaIPERS employer contribution rate. The amendment to the City's contract with CalPERS providing the new CalPERS retirement formula would not become effective until July 1, 2012. Financial Impacts and Budget Actions Per the terms of the Memorandum of Understanding (MOU) Umbrella Agreement between the City and its non -sworn bargaining units, the amendment to the City's contract with CalPERS to provide Section 21354, 2.0% @ 55 full formula for active local miscellaneous members and other changes noted above would result in a reduction in the cost of retirement benefits in future years from the cost of the current level of benefits provided. However, immediate cost - savings to the City cannot be predicted. No additional appropriation or budget action would be necessary. Sufficient funds are included in the FY2011 -2013 budget for current eligible employees. Prepared by: Roslyn Hirata, Senior Human Resources Analyst Approved: Forwarded to Council: Donna C. Peter Rod Gould Director, Human Resources Department City Manager Attachments: A. Resolution 3 Reference Resolution No. 10626 (CCS) and MOU No. 9495 (CCS).