City Council Meeting: January 23,
2007
Agenda Item: 7-B
To: Mayor and City Council
From: Karen Bancroft, Director of Human
Resources
Subject: Resolution of Intention to Amend
Contract between the
Recommended
Action
This report recommends that Council
1.
adopt
the attached resolution stating its intent to approve an amendment to the contract
between the California Public Employees’ Retirement System (CalPERS)and the
City of Santa Monica to provide Section 21354.5 (2.7% @ 55 Full Formula) for
local miscellaneous (non-safety) members;
2.
hold
a public hearing; and
3.
introduce
for first reading an ordinance to amend said contract.
Executive
Summary
The City of
City of
At the June 27, 2006
meeting, the City Council adopted a Resolution authorizing the City Manager to
execute a Memorandum of Understanding (MOU) with the City’s Miscellaneous
(non-safety) bargaining units to amend the City’s contract with CalPERS to
provide the 2.7% @ 55 full formula for active local miscellaneous employees
under Section 21354.5 of the California Government Code, effective as of June
1, 2007. Under the terms of the MOU, the employees will reimburse the City for
the additional cost of this benefit through an after-tax payroll deduction. The employee reimbursement to the City is being
phased in, starting as of July 1, 2006.
Discussion
Based on the valuation prepared by CalPERS, the implementation of the 2.7% @ 55 retirement formula would increase the City’s CalPERS contribution rate by 5.724% and the employees’ contribution rate by 1.0%.
The increase in the City’s contribution rate includes the repayment of an unfunded liability that covers retirement costs of employees who retire prior to the increased benefit being fully funded. The payment of the unfunded liability, which results in an increase to the City’s Accrued Liability (AL), will be amortized over 20 years by CalPERS and accounts for 3.586% of the 5.724% increase to the City’s contribution rate. At the end of 20 years, the unfunded liability will have been paid by the City, resulting in a corresponding reduction in the City’s Accrued Liability (AL) and the City’s CalPERS contribution rate.
Since the City pays the employees’ CalPERS contributions on their behalf, per the terms of the MOU between the City and its miscellaneous bargaining units, miscellaneous employees will reimburse the City for the increase in the City’s CalPERS contribution rate and the employee’s CalPERS contribution rate resulting from the amendment to the City’s contract with CalPERS to provide 2.7% @ 55 retirement formula option for the City’s miscellaneous (non-safety) employees.
In order to amend the City’s contract with CalPERS to provide the 2.7% @ 55 retirement formula option for the City’s miscellaneous employees, the City Council must
2.
hold a public hearing; and
3.
introduce for first reading an ordinance to
amend said contract.
Since the effective date of the amendment to the City’s contract
with CalPERS providing the new CalPERS retirement formula must coincide with
the beginning of a payroll period, the amendment will become effective May 27, 2007
since this is the payroll period that covers June 1, 2007, the effective date
set forth in the MOU between the City and its miscellaneous (non-safety)
bargaining units.
This report
requests that Council adopt the attached resolution stating its intent to
approve an amendment to the contract between the California Public Employees’
Retirement System (CalPERS) and the City of
Budget/Financial Impact
This change to the miscellaneous members’ CalPERS retirement plan
increases the present value of benefits (PVB), or total cost of the plan, from
$427,719,548 to $480,459,890, which is a net PVB increase of $52,740,342. This accounts for 2.138% of the 5.724%
increase in the City’s contribution rate.
The accrued liability (AL), which includes the unfunded liability for the retirement costs of
employees who retire prior to the increased benefit (2.7% @ 55) being fully
funded, will increase from $323,085,273 to $355,979,079, for a total net
increase in the accrued liability (AL) of $32,893,806. This net increase of $32,893,806 in the
Per the terms of the MOU between the City and its miscellaneous
bargaining units, the amendment to the City’s contract with CalPERS to provide
Section 21354.5, 2.7% @ 55 full formula for active local miscellaneous (non-safety)
members only, will have no net budget or financial impact on the City since the
employees will reimburse the City for the total increase in the combined City and
employee contributions to CalPERS.
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Approved: |
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Forwarded to Council: |
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Karen Bancroft Director,
Human Resources Department |
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P. City
Manager |