Pension and Other Post Employment BenefitsSOWN �F MEETING DATE: 09/4/2012
ITEM NO:
ios cnt�e COUNCIL AGENDA REPORT
DATE: August 30, 2012
TO: MAYOR AND TOWN COUNCIL
FROM: GREG LARSON, TOWN MANAGER
SUBJECT: APPROVE RESPONSE TO THE SANTA CLARA COUNTY GRAND JURY
REPORT REGARDING PENSION AND OTHER POST EMPLOYMENT
BENEFITS
RECOMMENDATION:
Approve response to the Santa Clara County Grand Jury report regarding Pension and Other Post
Employment Benefits (OPEB).
BACKGROUND:
The Civil Grand Jury is an investigatory body that reviews and evaluates procedures, methods and
systems used by governmental agencies to determine whether a local agency complies with stated
objectives and if the agency's operations can be made more efficient and/or effective. California
Penal Code section 933(c) requires the governing body of the public agency which has been the
subject of a Grand Jury final report to respond to the findings and recommendations. The proposed
response, which is included as an attachment to this report, is due in compliance with the code, no
later than Friday, September 14, 2012.
DISCUSSION:
On June 13, 2012, the Santa Clara County Civil Grand Jury issued a report to present the findings
and recommendations from their study on pension and other post - employment benefits costs for
local government agencies in Santa Clara County. In the report, the Civil Grand Jury assessed the
viability and sustainability of public employee benefits for the agencies within the county.
The scope of the study included the cost of benefits, efforts undertaken to control costs, projected
revenues to cover the cost of benefits, and differences between public and private- sector benefits.
PREPARED BY: RUMI PORTILLO our
HUMAN RESOURC S DIRECTOR
Reviewed by:_ Assistant Town Manager Town Attorney Finance
NAMGRAdminWorkFiles�2012 Council RepoitsV.4.12 Grand Jury Response OPEB.doc
PAGE 2
MAYOR AND TOWN COUNCIL
SUBJECT: APPROVE RESPONSE TO THE SANTA CLARA COUNTY GRAND JURY REPORT
REGARDING PENSION AND OTHER POST EMPLOYMENT BENEFITS
AUGUST 30, 2012
It was the conclusion of the Civil Grand Jury that the Pension and OPEB costs overall are interfering
with the delivery of essential services and that the costs are an unbearable taxpayer burden.
Subsequent to the publication of the Civil Grand Jury report, the Governor announced the passage of
the California Public Employees' Pension Reform Act of 2013 ( PEPRA). The PEPRA significantly
modifies pension benefits by increasing the retirement age, reducing pension formulas, applying an
income cap and placing a number of other restrictions that will serve to reduce future costs.
Details of the PEPRA are pending and further analysis of the Act is required. However, the
Governor's summary released at the time of this staff report indicates that this legislation will meet
many of the key objectives contained in the Civil Grand Jury report.
It should be noted that prior to the passage of PEPRA, the Town and employee groups had worked
collaboratively on cost - containment efforts, including adopting a two -tier retirement system for all
new non -sworn employees to reduce future costs. The Town had also notified employee groups that
additional cost - containment efforts would be included in future bargaining sessions for both sworn
and non -sworn staff.
In regard to specific recommendations contained in the Civil Grand Jury report (prior to the passage
of PEPRA), the Town agreed with all applicable recommendations made by the Civil Grand Jury
and had already implemented five of the recommendations contained in the report.
CONCLUSION:
Staff recommends approval of the responses as attached. Staff will prepare a letter to the Grand Jury
to document the Town's responses as required.
FISCAL IMPACT:
There is no fiscal impact for approving the responses to the Civil Grand Jury report.
Attachments
2011 -2012 Santa Clara County Civil Grand Jury Report, "An Analysis of Pension and Other Post
Employment Benefits"
ATTACHMENT A
Santa Clara County Grand Jury Report: An Analysis of Pension and Other Post - Employment Benefits
Summary of Town of Los Gatos Response
August 30, 2012
Page 1
NOTE. The responses provided below were prepared prior to the announcement of the Public
Employee Pension Reform Act of 2013 (PEPRA). Details of the act are not yet known; however it is
anticipated that the items marked with an asterisk ( *) will be implemented or impacted by via the
provisions of the PEPRA.
Public sector employees are eligible for retirement at least 10 years earlier than is common for private sector
employees.
Los Gatos Response: Agree
Recommendation 1
The Cities should adopt pension plans to extend the retirement age beyond current retirement plan ages.
Implemented
Not Yet But In Future
Requires Further Analysis
Will Not Be Implemented
Los Gatos has
implemented for
miscellaneous (non -
sworn) employees and
intends to engage in
negotiations for sworn
when the current union
agreement expires.*
Finding 2
Campbell, Gilroy, Los Altos Hills, Los Gatos, Milpitas and Palo Alto have adopted second tier plans that offer
reduced Benefits, which help reduce future costs, but further changes are needed to address today's unfunded
liability. Santa Clara County and the cities of Cupertino, Los Altos, Monte Sereno, Morgan Hill, Mountain View, San
Jose, Santa Clara, Saratoga and Sunnyvale have not adopted second tier plans.
Los Gatos Response: Agree
Recommendation 2A
Santa Clara County and the cities of Cupertino, Los Altos, Monte Sereno, Morgan Hill, Mountain View, San Jose,
Santa Clara, Saratoga and Sunnyvale should work to implement second tier plans.
Implemented Not Yet But In Future Requires Further Analysis Will Not Be Implemented
Not applicable to Los Gatos.
ATTACHMENT A
Santa Clara County Grand Jury Report: An Analysis of Pension and Other Post - Employment Benefits
Summary of Town of Los Gatos Response
August 30, 2012
Page 2
Recommendation 2B
For Gilroy, Los Gatos, Milpitas and Palo Alto, which have not implemented second tier plans for MISC and Public
Safety second tier plans should be implemented for both plans.
Implemented
Not Yet But In Future
Requires Further Analysis
Will Not Be Implemented
Los Gatos has
implemented for
miscellaneous (non -
sworn) employees and
intends to engage in
negotiations for sworn
when the current union
agreement expires.*
Recommendation 2C
All Cities' new tier plans should close the unfunded liability burden they have pushed to future generations. The
new tier should include raising the retirement age, increasing employee contributions, and adopting pension plan
caps that ensure pensions do not exceed salary at retirement.
Implemented
Not Yet But In Future
Requires Further Analysis
Will Not Be Implemented
Re Retirement age, see
Recommendation 1.
Re increasing employee
contributions, see
Recommendations 4A and
4B. Re Pension caps, Los
Gatos does not have
authority to change the
pension caps established
by CaIPERS. However, Los
Gatos is open to
consideration once
CaIPERS provides the
option.*
ATTACHMENT A
Santa Clara County Grand Jury Report: An Analysis of Pension and Other Post - Employment Benefits
Summary of Town of Los Gatos Response
August 30, 2012
Page 3
Finding 3
Retroactive Benefit enhancements were enacted by Cities using overly optimistic RO1 and actuarial assumptions
without adequate funding in place to pay for them.
Los Gatos Response: Agree
Recommendation 3
The Cities should adopt policies that do not permit Benefit enhancements unless sufficient monies are deposited,
such as in an irrevocable trust, concurrent with enacting the enhancement, to prevent an increase in unfunded
liability.
Implemented
Not Yet But In Future
Requires Further Analysis
Will Not Be Implemented
Los Gatos has
Los Gatos has not
Further analysis is
implemented this
implemented this
required to understand
recommendation.
recommendation yet but
the impacts. The analysis
staff will make this
will be conducted prior to
recommendation for
the end of FY 2012/13.*
Council adoption prior to
the end of FY 2012/13.*
The Cities are making an overly generous contribution toward the cost of providing Benefits.
Los Gatos Response: Agree
Recommendation 4A
The Cities should require all employees to pay the maximum employee contribution rate of a given plan.
Implemented
Not Yet But In Future
Requires Further Analysis
Will Not Be Implemented
Los Gatos has
Further analysis is
implemented this
required to understand
recommendation.
the impacts. The analysis
Recommendation 413
The Cities should require employees to pay some portion of the Past Service Cost associated with the unfunded
liability, in proportion to the Benefits being offered.
Implemented
Not Yet But In Future
Requires Further Analysis
Will Not Be Implemented
Further analysis is
required to understand
the impacts. The analysis
will be conducted prior to
the end of FY 2012/13.*
ATTACHMENT A
Santa Clara County Grand luny Report: An Analysis of Pension and Other Post Employ m ent Benefits
Summary of Town of Los Gatos Response
August 30, 2012
Page 4
Finding 5
The Cities are not fully funding OPEB benefits as
Los Gatos Response: Agree
Recommendation 5
The Cities should immediately work toward
full OPEB ARC payments as soon as possible.
unfunded liabilities and small funded ratios.
policy changes and adopting measures aimed at making
Implemented
Not Yet But In Future
Requires Further Analysis
Will Not Be Implemented
Los Gatos has
Los Gatos does not have
implemented this
authority to change the
recommendation and
CaIPERS DB plan to a DC
currently has a long -term
plan. However, should
plan in place.
CaIPERS implement this
The City of San Jose should eliminate the SRBR program or amend the SRBR program to prevent withdrawal of
pension trust money whenever the pension- funded ratio is less than 100 %.
Los Gatos Response: Not applicable.
The Cities' defined benefit pension plan costs are volatile. Defined contribution plan costs are predictable and
therefore more manageable by the Cities.
Los Gatos Response: Agree
Recommendation 7
The Cities should transition from defined benefit (DB) plans to defined contribution (DC) plans as the new tier
plans are implemented.
Implemented
Not Yet But In Future
Requires Further Analysis
Will Not Be Implemented
Los Gatos does not have
authority to change the
CaIPERS DB plan to a DC
plan. However, should
CaIPERS implement this
recommendation, Los
Gatos will conduct further
analysis.*