Council pushing for pension reform

For the first time in its 40-year history, the city of Simi Valley is considering lowering its pension benefits for city employees.

The decision comes at a time when skyrocketing retirement costs are causing budgetary woes at all levels of government across California. Talks of pension reform are buzzing in the state Legislature and an initiative could be on the November ballot.

Though the city is not sure exactly how it will tackle the issue, one thing appears certain: It can no longer afford to maintain the status quo.

“It’s not sustainable,” City Manager Mike Sedell said. “That’s why cities and counties are coming down to a realization that pension reform is critical to the sustainability of local budgets, and the state budget, for that matter.”

Change needs to happen soon, the city manager said, as escalating costs have quickly outpaced revenues, particularly in the face of the depressed economy.

Of the $57.7-million general fund budget for fiscal year 2009-10, $8.2 million, or 14 percent, goes toward paying for pensions.

According to Sedell, over the last 10 years the amount the city has had to pay into the California Public Employees’ Retirement System (CALPERS) has grown 28 percent. In the same period, not counting this past year, city revenues have increased about 4 percent.

“Pension reform is critical . . . because the City Council is adamant: They don’t want to be cutting services to the public simply so they can pay retiree benefits,” Sedell said.

During the last round of negotiations with the city’s three employee groups—the Police Officers Association (POA), the Service Employees International Union (SEIU) and management—pension reform was kept off the table, which was already crowded with other issues to discuss.

In addition, concern has been expressed regarding equity in the treatment of the various unions, so the city wanted to deal with all the employee groups similarly and concurrently, Sedell said.

The city contracts with PERS to provide pensions for 559 city employees. There is one contract for sworn employees and another for general unit and management employees.

The POA and sworn management get 3 percent at 55, a formula which means that a police officer who retires at 55 after 30 years of service will receive 90 percent of his highest salary for the rest of his life. Sworn management includes all officers the rank of lieutenant and above.

The general unit, or SEIU, and management get 2 percent at 55, which means that a 30-year city employee who retires at 55 will receive 60 percent of their highest salary. City Council members’ pensions are based on the same formula.

The city contributes both the employer’s share and the employee’s share to PERS, which means employees don’t pay anything for their pensions.

Sedell said the reason for today’s pension mess dates back to the late 1990s when PERS was “superfunded.” After several years of high returns on its investments, PERS had excess funds and told the city—and other contracted jurisdictions—it didn’t have to pay its employer’s share.

What’s more, the city was told it wouldn’t have to pay for another 15 to 20 years and that it could increase benefits for its employees at no cost.

“The employees wanted it and it was hard to say no with the money sitting there,” Sedell said. “No one heeded the call of ‘no free lunch.’”

It was then that the city upgraded to its current formulas.

Soon after, the PERS investments tanked, and instead of not having to pay for 20 years, the city was seeing rates increase, Sedell said.

While some have pointed fingers at city leadership, the city manager said it’s not the city’s fault, putting the blame on the economy instead.

Even so, he said, the city needs to find a way to lower costs and create sustainability while preserving what people have worked for and maintaining the city’s recruitment and retention potential.

Several options are available to the city for combating the pension problem.

Firstly, it could move from a defined benefit plan to a defined contribution plan.

The latter does not promise a specific amount of benefits at retirement, but rather pays the employee the balance of an investment account they’ve helped pay into, plus or minus gains or losses.

Another option the city is considering is bringing on new hires at a less costly formula.

Meanwhile, the state is working to pass its own reform.

Nancy Fisher, a nine-year city employee and president of the Simi chapter of SEIU, said she didn’t want to “second-guess” what the city may or may not do.

But she did say the general unit employees are happy with their current pension plan and wouldn’t want to see it replaced with a lesser benefit, especially since they make less than employees in the other groups and don’t receive the same retiree medical benefits.

“(The public) tends to think that we are all in the same boat, and the three units are definitely treated differently and we are the smallest as far as benefits go,” said Fisher, who works as a secretary in the community services division. “We have the least; we cost the city the least.”

Detective Kevin Duncan, vice president of the POA, said he doubts the union would agree to adjust its formula either, nor is the union interested in going to a two-tiered system where new employees would receive a lower rate.

“I think we’re comfortable at 3 percent at 55,” he said. “It’s not the Cadillac that people report it as, but it’s a good plan and we’re satisfied with that.”

Furthermore, Duncan disagrees that pensions are “unsustainable,” saying that perhaps all that’s needed is better management.

“The city has had in the past the ‘pay as you go’ approach. So the years when PERS has been superfunded . . . they haven’t saved money for PERS,” he said. “Does it behoove the city to put money aside when they don’t have to pay PERS? Maybe.”

Sedell said the city anticipates serious discussions with its employee groups on the pension issue over the next six months.