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Santa Rosa can proceed with two-tier pensions
Published: Tuesday, January 17, 2012 at 3:00 a.m.
Last Modified: Tuesday, January 17, 2012 at 9:12 p.m.
Santa Rosa City Hall can implement reduced pension benefits to most future workers now that the union that blocked the change for two years has dropped its legal challenge.
Last month a judge rejected claims that the city failed to negotiate in good faith with the union representing about 180 city maintenance workers.
Operating Engineers Local Union No. 3 decided not to appeal the ruling to the state Public Employee Relations Board, which last week issued a final ruling in the city's favor.
The decision clears the way for the city to institute a “two-tier” pension system for all employees except police and firefighters. The change would not affect existing workers' pensions, but would pay less generous benefits for new workers.
“From a legal standpoint, it eliminates the obstacle of moving forward with a second tier,” said City Attorney Caroline Fowler.
Whether the council will implement it, however, is unclear.
Councilman Gary Wysocky argues that a second tier doesn't fix the problem and lets current workers continue to earn benefits the city can't afford to pay.
“Basically, we're passing the buck to future generations to pay current benefits,” Wysocky said.
But the second tier never has been viewed as a cure-all for the city's pension woes, said Councilman Scott Bartley, chairman of the city's recent Pension Reform Task Force.
“It isn't a quick solution, but it's a step in the right direction toward the long-term sustainability of the city,” Bartley said.
The city will contribute $26.4 million this year toward the retirements of its 1,200 workers.
The task force came up with a list of potential changes to rein in the pension plans, which, due to investment losses and more generous benefits, are underfunded by about $112 million, according to the latest estimates from the state Public Employee Pension Retirement System, which administers the city plans.
The City Council directed its staff to focus on four options, one of which was creating a second tier for all workers. Most non-public safety workers, known at City Hall as miscellaneous employees, agreed to the changes at least two years ago. The legal challenge by the maintenance workers prevented the city from implementing it.
The city now is talking to police and fire fighters about similar changes, but the groups have not agree to it.
Others options outlined by the task force include increasing the amount workers pay toward their pensions, basing retirement not on the highest single year of pay but on the average of three years, and making police and firefighters pay the 9 percent employee share of pension costs that the city picks up on their behalf.
Any change would need to be the subject of contract negotiations with employee groups. If all four changes were implemented this year, the city estimates that after 10 years it could save up to $18 million a year.
The savings from a second tier for non-public safety workers is just a small piece of that total. Because hiring has slowed in recent years, the potential savings has shrunk significantly. Officials now estimate a second-tier for regular workers would save $107,000 this year and $1.2 million after 10 years.
The plan for regular workers is known as 3-at-60, meaning they can retire at 60 with three percent of their highest year's pay for every year worked. That means after 30 years of service, they can get 90 percent of their highest salary for the rest of their lives. It is possible for longtime workers to earn more in retirement that they did on the job.
Two years ago, unions representing most such workers agreed to lower those benefits to 2.5–at-55 for new hires. That means that after 30 years of service they could earn 75 percent of salary for the rest of their lives, beginning at 55.
Police and firefighters have the most generous plans. They can retire at age 50 with up to 90 percent of their salaries. Lowering the benefits for new public safety workers could save the city $1 million a year after 10 years, the city estimates.
Dave Gossman, a union representative for the maintenance workers, said just because the city prevailed in the two-tier case doesn't mean the council will impose it. The cost savings are questionable and retirement system liabilities have eased recently because of improved investment returns, Gossman said.
“The City Council can still go a different direction on this. I don't think it's a slam dunk,” he said.
Wysocky contends that is unfair and insufficient to reduce benefits for new workers without tackling the benefits to existing workers.
“It's a benefit bubble. We know we can't go on with it, and yet we're going to do everything thing short of real change,” he said.
Bartley, however, asserted that it is well established that reducing benefits to existing workers can't be done legally without their consent.
“To say we need more is not a reason not to take what we can get now,” he said.
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