The City Council’s plans to pursue a two-tier city employee
retirement system has at least a couple union representatives
concerned.
The City Council’s plans to pursue a two-tier city employee retirement system has at least a couple union representatives concerned.
During its Feb. 2 meeting, the council endorsed a policy statement by the Santa Clara County and San Mateo County City Managers Association in support of two-tier pensions. Under such a system, current employees would retain their negotiated level of retirement benefits while new employees would get a lesser retirement package.
But at least a couple of union representatives fear that a two-tier system could put cities at a competitive disadvantage, even if other cities are pursuing the same thing.
“We need to take a step back and look at this, and not have a knee-jerk reaction,” said Mitch Madruga, president of the Gilroy Police Officers Association.
As the association’s contract expires in June, it will be the first of the city’s unions to face the possibility of a two-tier system. The contract for Gilroy Fire Fighters Local 2805 expires at the end of 2011, and the contract for the American Federation of State, County and Municipal Employees – which represents the majority of the city’s non-emergency workers – expires at the end of 2013.
The current “3-at-50” plan approved for police officers allows them to retire at age 50 and guarantees that they will receive an annual amount equal to 3 percent of their highest salary multiplied by the number of years they worked, up to 30 years. For instance, an officer who retired after 30 years on the job with a top salary of $100,000 would receive $90,000 per year.
Similar to police officers, firefighters have a “3-at-55” plan and other city employees have a “2.5-at-55” plan.
Madruga said the city could be at a competitive disadvantage when recruiting for police officers under a two-tiered system because – even if other cities switch to two-tier systems – Gilroy’s contract will expire before other cities’ contracts.
The two-tier system also would not save the city money until many years from now, he said. In the meantime, the economy will likely rebound, he said.
“We’ve been through these cycles time and time again,” Madruga said. “Things rebound. Things come back. We’re in a little bit tougher times than we have been in the past, but we’ve always had these downturns.”
Jim Buessing, secretary and treasurer of Gilroy Fire Fighters Local 2805, said the city had not directly approached the union about a two-tiered system. He would not speculate about the impacts of such a system without hearing a proposal.
“It’s a negotiable item,” he said. “There has to be full discussion with pros and cons.”
Gilroy is just one of many cities that have discussed the idea of having a two-tier system, he said.
“This isn’t the first time these types of proposals have come forward,” Buessing said. “This is definitely a statewide issue that’s being pushed.”
Kurt Svardal, president of the Gilroy Management Association, and Gary Muraoka, local president of the American Federation of State, County and Municipal Employees, could not be reached for comment Thursday.
However, Muraoka said during the Feb. 2 council meeting that retirement plans for public safety union members cost far more than those of other city employees. He also cited informational material from the California Public Employees Retirement System – which manages state employees’ retirement accounts – that states that its investment losses have created bigger financial problems for cities than increased pension formulas.
Gilroy City Administrator Tom Haglund said he hoped that the City Council’s endorsement of the policy statement would help alleviate concerns about competing with other cities.
“We realize that we’re all in the same sort of employee market,” he said.
There may be some competitive challenges early on, as other cities still may be under old contracts with better retirement plans when Gilroy’s union contracts expire, he said, but those contracts eventually will come to an end, and most of those are slated to do so within the next four to five years.
A few council members said this week that the city simply cannot afford to provide the retirement plans that it has in the past.
“Even if the economy does turn around, (the current situation) has been pretty instructive, hasn’t it?” Councilman Bob Dillon said.
The impacts of a two-tier system might not be felt until 10 years from now, but “we have to think about future councils,” he said.
Councilman Craig Gartman said he would like to see the entire city switch away from CalPERS pensions entirely. That would likely require amending the memorandums of understanding with all the city’s unions, as all city unions would need to switch from CalPERS simultaneously under law.
Typically only larger cities, such as San Jose, have their own retirement systems, Haglund said.
“Managing your own retirement system requires a lot more expertise and effort,” he said.
However, Gartman said that process could be simplified by giving city workers 401K plans like other businesses. But, whether unions would agree to such a plan is “the $64,000 question,” Gartman said.
“When we don’t have the money, we don’t have the money,” he said. “I think that unions forget that.”
Mayor Al Pinheiro said he would be open to at least discussing alternatives to CalPERS. Regardless, he said the need to switch to a two-tier system is “inevitable.”
“What we have right now, we can’t afford,” Pinheiro said.
WHY YOU SHOULD CARE
The City of Gilroy might need to spend $30 million during the next 30 years to make up for investment losses to its retirement accounts. Meanwhile, city pensions have climbed substantially within the past decade, similar to many other cities throughout the state. The council is concerned about future costs and wants to provide less expensive benefits to any new workers who join the city. Some union representatives argue lower pensions will cause potential employees to be less interested in working for the City of Gilroy.
