RPVCCA_CC_SR_2011_11_15_07_Long_Council_PolicyCITY OF
MEMORANDUM
RANCHO PALOS VERDES
TO:
FROM:
DATE:
SUBJECT:
MEMBERS OF THE CITY COUNCIL
THOMAS D.LONG,MAYOR
NOVEMBER 15,2011
PROPOSED CITY COUNCIL POLICY REGARDING CITY
CONTRIBUTION TO PENSION COSTS
RECOMMENDATION
The current City Council recommends that the future City Council consider establishing a
City Council Policy regarding City contribution to pension costs,enabling the City to better
manage annual fluctuations in the CalPERS employer contribution amounts.
DISCUSSION
The City's employees are not eligible for Social Security.The City devotes sums that are
similar to what would be paid to Social Security to provide a defined benefit pension to its
employees.Over the last 25 years,the City's share of those costs has averaged 5.557%
of payroll for the "employer side"of the CalPERS contributions.The City has also paid 7%
of payroll for the "employee side"through FY06-07,and 6.5%from FY07-08 until recently.
Combined,these costs are similar to what would have been paid if the City had
participated in Social Security.However,the benefits provided by the City plan are
substantially superior to Social Security.For this reason,the current Council did not adopt
pension revisions that would have reduced the benefits to a level that would have forced
the City to participate in Social Security.
The "employee side"of the CalPERS contribution is now entirely the responsibility of
employees.The employees have previously taken responsibility for 1.5%when pension
benefits were increased in 2007 as a way of contributing toward the cost of the pension
plan increases.With the latest revisions which created a Tier 2 and which are likely to
save the City between $1.2 million and $1.6 million over the next 6 years,the employees
assumed responsibility for the remaining 6.5%of the employee side contribution in
exchange for a one-time salary increase of 5%.As a result,the "employee side"of the
CalPERS contribution will no longer be a part of the City's costs on a going forward basis.
The City's "employer side"of the CalPERS contribution has averaged 5.557%over the last
25 years but has varied widely because unlike the "employee side"it is not a fixed
percentage of salaries and wages.I am attaching a chart provided by staff showing the
percentage contribution over the last 25 years.The contributions have ranged from 0%in
7-1
PROPOSED CITY COUNCIL POLICY REGARDING CITY CONTRIBUTION TO
PENSION COSTS
November 15,2011
Page 2 of 2
7 of the last 25 years to as high as 15.275%in Fiscal Year 08-09.Again,this is a function
of varying investment returns and,accordingly,has been high in recent years.
When I was first elected to the Council,I raised the question of whether it was wise to
simply accept the CalPERS contribution assessments and established rates or whether we
should instead be establishing our own reserve during years when CalPERS made small or
no contribution demands on the City so that we would have additional money available in
reserve for years when CalPERS made higher demands.Although making such a change
in policy will not save any money,it will smooth out the costs of contribution and will require
the Council to be more disciplined in setting aside money for pension costs.
As a reswlt of the facts discussed above,I ask that the current Council recommend to the
next Council that it adopt the following policy.
The policy of the City Council towards contribution of pension costs for so long as the
City participates in CalPERS shall be as follows:
(1)The City will not pay the employees'membership expenses of CaIPERS.This fact,
along with all other facts relating to total employee compensation,will be considered
in the periodic employment market surveys that are done to establish appropriate
salaries for City employees;
(2)In years when the CalPERS'employer contribution falls below the higher of (a)the
employee contribution ofCalPERS (currently 8%)or the 25 year running average of
prior City assessments (currently 5.557%)the difference between the actual
CalPERS employer contribution and the higher percentage of payroll calculated
herein will be set aside in a reserve to be drawn upon only in the circumstances
described in paragraph 3 below;and
(3)When the CalPERS employer contribution exceeds the higher of (a)the employee
membership contribution rate or (b)the 25 year average of CalPERS assessments
and established rate of the City by more than 1%ofpayroll,the City may draw upon
the reserve established in paragraph 2 above to cover any such excess.
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Actual
Employer
Contribution
Rate
FY10-11 10.263%
FY09-10 15.111%
FY08-09 15.275%
FY07-08 14.699%
FY06-07 12.906%
FY05-06 12.452%
FY04-05 8.537%
FY03-04 2.455%
FY02-03 0.000%
FY01-02 0.000%
FYOO-01 0.000%
FY99-00 .0.000%
FY98-99 0.000%
FY97-98 5.868%
FY96-97 5.075%
FY95-96 4.000%
FY94-95 4.790%
FY93-94 4.600%
FY92-93 4.900%
FY91-92 5.400%
FY90-91 4.200%
FY89-90 4.100%
FY88-89 4.300%
FY87-88 0.000%
FY86-87 0.000%
25-Year Average 5.557%
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