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EL CERRITO Date: To: From: Subject: July 17,2012 El Cerrito City Council Sukari Beshears, Employee Services Manager Two Years Additional PERS Service Credit ACTION REQUESTED AGENDA BILL Agenda Item No. 7 Review this report regarding costs and implementation of two years additional PERS Service Credit and direct the City Manager to submit a resolution for the City Council's consideration at its August 21, 2012 meeting that designates a two-year service credit retirement period from August 22, 2012 through November 27, 2012 for eligible miscellaneous and public safety employees. BACKGROUND/ANALYSIS In September of 1992, in response to fiscal concerns, the El Cerrito City Council adopted an amendment to its contract with CalPERS to provide a retirement incentive for eligible employees. This amendment allows for two years additional service credit to those retiring within the time period designated by the City. Over the years, the City has opened six window periods within which eligible employees could take advantage of the additional two-year service credit option. These periods were as follows: October 1, 1992 through December 31, 1992, July 1, 1993 through December 27, 1993, July 1, 1994 through December 27, 1994, April1, 1997 through September 27, 1997, December 8, 2003 through June 4, 2004 and fmally July 12, 2009 through October 10, 2009. Each time a period was designated, the City certified that the incentive served the best interests of the agency "because of an impending curtailment of, or change in the manner of performing service" that would result in "impending mandatory transfers, demotions, and layoffs." Further, the City certified to CalPERS that at least one vacancy would remain unfilled resulting in an overall reduction in the work force. Prior to each window period, the City calculated the potential cost assuming that every eligible employee would retire during the period using formulas set by CalPERS. In accordance with CalPERS regulations, this potential cost is made public at a Council meeting at least two weeks prior to adoption of the resolution setting the window period. Although specific data on the actual number of retirements during the El Cerrito window periods was not readily available, PERS has acknowledged that only a fraction of eligible employees take advantage of this retirement incentive when offered. Not included in the calculations that CalPERS defmes are the accrued leave expenses that the City incurs when a particular individual retires. There is also recruitment and training costs associated with hiring new employees and the learning curve may negatively impact service. ---PAGE BREAK--- Agenda Item No. 7 Additionally, in some cases overtime or more expensive temporaries may be needed in the short term. The hard costs associated with offering the retirement incentive are offset by the savings due to factors such as, the time elapsing between when the vacancy arises and when it is filled, filling vacancies at lower salary steps, substituting entry level positions for vacancies that might arise in senior level positions, and possible elimination of positions. The primary purpose of this action is to create an opportunity for longer-term salary savings and the identification of opportunities to reduce or reorganize current staffmg. New employees also have lower benefit accruals and thus are entitled to fewer paid days away from work. FINANCIAL CONSIDERATIONS An analysis of the demographics of the City's workforce revealed a total of 32 miscellaneous and 11 safety employees who would be eligible to take advantage of the two-year additional service credit option if a new window period was designated. If all43 eligible employees took advantage of the two-year service credit option and retired during the window period, the CalPERS rate estimate formula anticipates an increase of approximately .008% or $45,000 annually. Practically, however, it is reasonable to assume that only between 10 and 20 employees would actually retire and the annual cost would be lower. The costs would be built into our subsequent employer retirement rate beginning with the annual valuation report for the fiscal year that begins two years after the end of the designated window period, i.e., fiscal year 2014-2015. In addition, the retirees would be paid for their accrued leave balances at the time they leave City employment. The average accrued leave payout of eligible employees is estimated at $16,000. If we anticipate 15 staff retiring the accrued leave payouts will cost approximately $240,000. These costs are anticipated to be more than offset by salary savings due to the time required to fill vacancies and lower pay rates for new employees, as well as the possible elimination of positions. Therefore, no additional appropriations will be needed at this time or built into the budget for fiscal year 2012-2013. As a result of the continued fmancial threats related to the dissolution of the Redevelopment Agency, State's fiscal crisis, decreases in City revenue and related impact on City services, it is prudent for the City to offer the two years additional service credit as a retirement incentive to City employees. Further details will be provided at the next meeting as part of the certification process.