City of Palo Alto
understand the facts about pensions and the status of the
City’s efforts to manage our costs
and provision of benefits while maintaining a talented work force.
Council proposed exploring a sustainable model of pension, health and other benefits in its
Colleagues’ Memo dated June 15, 2012. Beginning
with the Council meeting of October 15,staff created a foundation for this discussion with a review of the components of totalcompensation (salary, health benefits, retirement savings/pension, paid time off, etc.) and theirrelationship to recruitment and employee engagement. This report, the second in a series of three reports, seeks to educate the public and City employees about the CalPERS pensionssystem, explain the Public Employee Retirement Law (PERL) and the Public Employee PensionReform Act (PEPRA) that became effective January 1, 2013, and provide a foundation for policydiscussions and long-term strategies from Council regarding employee pensions. Many of these
issues are subject to collective bargaining with the City’s recognized bargaining u
nits and tostate law.The primary objective of PEPRA is to ensure that employees share in paying the normal pensioncost, introducing a lower-formula second pension tier, and in this regard Palo Alto has been inthe forefront of implementing cost-cutting pension practices as permissible under existing law.Before PEPRA, Palo Alto had already implemented second tier CalPERS plans and negotiatedthat employees pay their full percentage of pension cost for nearly every employee group. Areview of our standard Bay Area survey cities indicates that only 41% of cities have createdsecond pension tiers for miscellaneous employees and 50% for public safety. Additionally, 25%of survey cities continue to provide City-paid employee pension contributions and only oneagency pays some portion of the employee pension contribution for safety employees.Most of the PEPRA changes apply to new, future employees. PEPRA does not do enough,however, to address the hurdle that California agencies still face covering the cost of increasingly expensive employee pensions for current active employees and retirees. Citiesoperating under the CalPERS pension system will experience increasing costs and the lack of flexibility provided to cities will put downward pressure on salaries and health benefits.