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Santa Rosa has struck sweeping pension agreements with its police and fire unions that are expected to save the city millions in coming years.

The tentative agreements, which head to the City Council on March 20, establish lower pension benefits for new workers, increase the amount employees must pay toward their pensions and institute anti-spiking provisions.

City officials have been working toward the agreements for months and are thrilled to have them in place before the budget process begins in earnest, City Manager Kathy Millison said.

"This is big for us," Millison said. "Coming to terms this far in advance of the fiscal year allows us to work with some real numbers for our budget instead of estimates."

She praised both employee groups for their professionalism, recognition of the city's financial condition and no-nonsense approach to bargaining.

"In my 30 years, I've never experienced anything quite like this," Millison said.

Both groups agreed to establish what is known as a "second tier" of pension benefits for new hires beginning July 1. Currently, police and firefighters can retire at age 50 with 90 percent of their salary for life if they've put in 30 years of service. That age will be pushed back to 55 for new hires.

In addition, new hires will see their pensions calculated by a less generous formula. Instead of using the single highest salary, which is usually the final year of service, pensions for future workers will be based on the average salary of their final three years of service. This is often referred to as an "anti-spiking" provision because it prevents employees from jacking up their salary right before retirement to generate higher pension payments.

The second tier and anti-spiking provisions are expected to save the city $1 million annually for police and $800,000 for fire after 10 years.

The savings might even be greater depending on how much turnover the departments see in future years.

"I think we're going to start realizing the savings quicker than people realize," Millison said. "We're going to see some turnover in the next two or three years of our senior staff in these departments."

The police contract is a new two-year contract. The fire deal is an addendum to an existing contract extended last year to 2013.

A major component of both deals is that both groups agree to begin paying more toward the cost of their pensions.

In addition to its own contributions to the California Employee Retirement System, the city has for years also been paying the employees' contributions, equal to 9 percent of their salary. This is known as Employer Paid Member Contribution, or EPMC.

Last year, in exchange for 6 percent raises they were promised over two years, the city's 123 firefighters agreed to by next year pay 5 percent of their salary toward their pensions. The addendum requires new hires to begin paying the entire 9 percent.

Similarly, city's 140 police officers are now agreeing to pay the 9 percent that the city had been paying on their behalf. And like the firefighters, they'll get raises to help them do that.

The city has agreed to 8 percent salary increases to offset the 9 percent pension payments employees will begin making. That represents a 1 percent savings for the city. But it actually works out to more because the city gets out from under additional EMPC-related payments that amount to about 3.5 percent of salary, Millison said.

The change is expected to save the city $631,000 over the two-year contract and approximately $8,400 annually for each new hire.

In addition, the police union agreed to lower the entry level salary for new officers by 5 percent, replacing a five-step system with a six-step one. That's expected to save $5,500 annually for each new hire.

Finally, police agreed to lower a lump-sum payment for holiday pay they get every December, producing a savings of $300,000 over the contract.

"We understand that these are tough economic times and something needed to give," said Allan Schellerup, president of the Santa Rosa Police Officers Association.

The police vote was strongly in favor of the deal. The fire vote was closer, said Jack Thomas, president of Santa Rosa Firefighters IAFF Local 1401, who called it "a very emotional vote."

Some firefighters just don't like the idea of creating a second group of employees who will be doing the same work for lower compensation. Overall, however, the group agreed the concessions were wise.

The lower benefits for new workers was palatable to some because few new workers actually get hired at a young enough age to be able to retire with full benefits before 55 anyway, Thomas said.

"I felt like it was a fair thing for us to do," Thomas said. "And I think is saves the city quite a bit of money."

The city won the right to implement a two-tier system for most of its workers earlier this year following a lengthy appeal by one group. The city remains in discussion with those groups on that and other issues, Millison said.

You can reach Staff Writer Kevin McCallum at 521-5207 or kevin.mccallum@ pressdemocrat.com.