City moving toward pension reform
It’s called the pension reform committee, a think tank of stakeholders charged with saving the city from financial ruin.
Rocklin City Manager Rick Horst laid out the good, the bad and the ugly figures associated with the city’s pension liability at last week’s City Council meeting.
“We need to take the time and we need to be thorough and we need to get started,” Horst told the council on April 26.
Horst presented some sobering numbers on the city’s growing financial liability to maintain pensions for the 241 full-time city workers through the California Public Employees’ Retirement System and the amorphous post employment health care costs for previous retirees.
In the last 10 years the city’s annual pension costs jumped from $185,884 per year to $3,577,004, or an increase of 1,824 percent, according to Horst.
The employee count in 2000 was 209 full-time employees, compared to 241 in 2010.
A large under funded liability for cities around the nation is retiree health costs. By Rocklin City Council resolutions and through agreements with its labor units, the city contributes a fixed amount toward CalPERS medical plan premium for all eligible retirees.
“When we have 240 retirees now that we’re paying health benefits on — that number is only going to grow,” Horst said. “It may be 500 by the time we’re 15 to 30 years out.”
The city previously set aside $10 million in an undeclared trust to help fund retirement health care, but Horst said it’s not enough.
He said the city may need an additional $15 million with some estimates of up to $30 million to cover the accrued liability.
Rocklin’s annual operating budget is about $44 million, according to the city.
“That’s a significant number. That’s one we can stick our head in the sand and ignore because we don’t want to deal with it and end up like the cities not too far from here who had to declare bankruptcy,” Horst said. “This is 100 percent survivable, if we have certain course corrections now.”
Horst said the new committee, to be formed in June, would be tasked with making actionable recommendations by August.
The committee would include the city manager, city attorney, chief financial officer, public safety and general employee group representatives as well as consultants where appropriate, Horst said.
He said he wanted to invite representation from the city’s various unions to make them a partner in the transparent process.
“I know as soon as I bring this topic up it begins to send up alarms for everybody because people begin to wonder what that means and how that will affect them,” Horst said.
Horst’s report to the council also included recommendations that may be evaluated by the committee, including a two-tier pension system for new employees.
He wants them to consider lower benefits for public safety employees of 3 percent at age 55 in lieu of the current benefit of 3 percent at age 50 as well as general employees a lower benefit of 2 percent at age 60 in lieu of the current benefit of 2 percent at 55.
They may also recommend phased-in employee cost sharing programs and to adopt new employee contribution requirements.
Among other ideas, he wants the city to safeguard against pension spiking by targeting pensionable salary earnings that are not part of base salary, such as a car allowance, leave payouts and other executive benefits. In the past, the city has allowed employees to cash out six-figure leave payouts.
Last year, controversy erupted when it was learned the council had allowed then City Manager Carlos Urrutia to inadvertently spike his pension by bumping up his salary to allow him to pay his PERS contributions directly to the pension system.
That practice has since ended. Right now, the city does not pay Horst’s portion of his annual pension contribution, but gives him a monthly allowance to maintain a car and cell phone.
Horst previously expressed an openness to change that in the future. City Council members expressed their approval for the new reform plan.
“Excellent idea,” said council member Brett Storey.
Council member Scott Yuill, who made pension reform part of his reelection platform last fall, expressed appreciation for Horst taking on a sensitive issue.
“If everybody reaches a comfort level at the table we can get through this and be a healthy city,” Yuill said.
Mayor George Magnuson said the city taking control of the reform would be better than any mandated ballot initiative.
“I don’t want it to go to the voters,” Magnuson said. “I just as soon have it worked out in the (committee).”
Horst expressed a lack of confidence in any potential initiative that could be sparked by recent public outcries over perceived pension abuses.
“I’m concerned that the public may push an initiative almost as a knee-jerk reaction,” Horst said. “Be careful what you ask for.”
Rocklin’s Retirement Liability
2010 CalPERS contributions: $3.5 million
Estimated accrued retiree health care costs: up to $30 million
2010 city operating budget: $44 million
Number of full-time city employees in 2010: 241
Source: City of Rocklin