CITY COUNCIL: Policy Directioin on Appointing a CalPERS Retirement Advisory Committee

Meeting Date: June 8, 2010
Prepared by: Rich Guillen

City Council
Agenda Item Summary

Name: Review and provide policy direction on appointing a CalPERS retirement advisory committee to draft a report on the impacts of funding and sustaining the employee retirement and health care plans.

Description: A combination of the current economic environment, along with low return on investments, is impacting the CalPERS retirement plan statewide. As a result, the City’s contribution will dramatically increase, commencing in fiscal year 2011/2012. The attached memo proposes appointing an advisory committee to review the impacts of the CalPERS retirement plan to the City.

Overall Cost:
City Funds: No costs for appointing a committee.
Grant Funds: N/A

Staff Recommendation: Provide policy direction.

Important Considerations: The creation of a CalPERS advisory committee may require staff support. This being the case, the Council must determine whether the review of CalPERS should be part of the City Administrator’s Goals for F.Y. 2010/2011. If CalPERS is added as a Goal, the Council must consider which Goal will be supplanted.

Decision Record: No prior action has been taken by the City Council.

Reviewed:

Rich Guillen, City Administrator Date

CITY OF CARMEL-BY-THE-SEA
TO: MAYOR McCLOUD AND COUNCIL MEMBERS
FROM: CITY ADMINISTRATOR RICH GUILLEN,
COUNCIL MEMBER JASON BURNETT, and
COUNCIL MEMBER KENNETH TALMAGE
DATE: APRIL 29, 2010
SUBJECT: REVIEW AND PROVIDE POLICY DIRECTION ON APPOINTING A CALPERS RETIREMENT ADVISORY COMMITTEE TO DRAFT A REPORT ON THE IMPACTS OF FUNDING AND SUSTAINING THE EMPLOYEE RETIREMENT AND HEALTH CARE PLANS

RECOMMENDATION
Appoint a City Advisory Committee.

GOAL
Establish a factual, technical, and informational basis to help create a common understanding of the financial and related impacts of employee retirement and health care plans upon which to base future policy discussions.

BACKGROUND
Established in 1932, the California Public Employees’ Retirement (CalPERS) system provides retirement and health benefits for public employees, retirees and their families.

Since 1995, CalPERS offers a supplemental deferred compensation retirement savings plan to public agencies that contract for it and long-term care insurance on a not for profit basis.

CalPERS retirement system is a defined benefit, which provides a benefit based on a “defined formula”. An employee’s retirement benefit is calculated using a member’s years of service credit, age at retirement, and final compensation or salary. Three types of retirement are offered to an employee:
1. Service or “normal” retirement; and
2. Disability retirement when an employee can no longer perform their job duties due to illness or injury; and
3. Industrial disability retirement for public safety employees who has experienced a job related injury or illness.

CalPERS also provides death benefits for active and retired members, which are paid to eligible beneficiaries or survivors.

FISCAL IMPACT
The Advisory Committee and its report will not have any fiscal impacts but will help the City in understanding impacts of employee retirement and health care plans.

The “defined benefit” retirement for the Carmel-by-the-Sea employees is as follows:
Miscellaneous employee …………… 2% @ age 55
Public Safety employee ………………3% @ age 50
Miscellaneous employees contribute 7% and Public Safety employees contribute 9% towards the CalPERS retirement plan. The City of Carmel-by-the-Sea contributes 17.57% for miscellaneous employees and 31.47% for Public Safety employees.

In the past, the cost to sustain the above retirement benefit was not significant since the plans were “over funded”. CalPERS pools retirement revenues and invests accordingly.

When returns on their investments are high, the cost to the participating public agencies is lower. Likewise, when returns are low, the cost to public agencies goes up. It is no surprise that the recent sluggish economy has contributed to lower returns on CalPERS investments, which is resulting in a larger contribution from the City. If this trend
continues, the retirement plan won’t be sustainable in the long run.

ADVISORY COMMITTEE CHARGE AND TIMELINE
The City of Carmel-by-the-Sea isn’t immune to this statewide sustainablity problem. For this reason, we are recommending that the City should tap the community’s financial talent to create an Advisory Committee to review Carmel's use of the CalPERS retirement system. The composition of the committee should include a combination of two city council members, members from the public at-large, and members from the business community. Between now and the conclusion of the 2010-2011 budget process, the Advisory Committee will rely primarily on external sources of information, to minimize use of Carmel-by-the-Sea staff time until after the current budget is finalized.

Initially the Advisory Committee will engage in fact-finding through discussions and outreach to groups including CalPERS, the League of California Cities, other cities in California, and representatives from the city’s employee unions. The Advisory Committee will provide a draft report of the findings to the City Council. The City Council will solicit additional public input on this draft report and will then provide
direction to the Advisory Committee for finalizing the report.

We request the Advisory Committee provide the draft report to the City Council in time to be discussed at the August 2010 City Council meeting. If more time is needed, we request a status update at the August 2010 City Council meeting.

The City Council may act upon the information contained in the final report or may ask the Advisory Committee for its recommendations for further action.