City of El Segundo Can Save $3.3 Million Per Year in Employee Pension Costs

by Michael D. Robbins
Director, Public Safety Project, PublicSafetyProject.org

March 14, 2014

El Segundo Mayor Bill Fisher, and City Council Members David Atkinson and Marie Felhauer who give Fisher his Council majority, claim the City Council no control over City employee pension costs. They claim that is all determined by California state law. This is not true. They make this claim to deceive El Segundo voters into approving the massive Measure A tax increases on residents and businesses on the April 8, 2014 city election ballot.

This article explains how the City Council has significant control over employee pension costs, how the City Council increased employee pension costs, and how the City Council can save $3.3 million per year in employee pension costs.

The City Council controls employee pension costs in three significant ways:

1. The amounts of employee salaries, which are increased by pay raises and “special compensation” add-ons;
2. The percentage of the total CalPERS pension contributions employees are required to pay; and
3. Which pension formula and other pension options are provided to City employees.

Every pay raise increased the City’s CalPERS pension costs.

City employee annual pension income is a fixed percentage of their single highest year salary, including all those redundant and non-job-related “Special Compensation” union contract add-ons, for every year they worked. Firefighters and police get annual pension income of 3% of their single highest year salary for each year they worked, up to a maximum of 90%, with full retirement after 30 years at age 50 or 55. This corresponds to pension benefit formulas of 3% @ 50 and 3% @ 55, respectively.

Mayor Fisher supported wildly excessive and unsustainable pay raises for the already over-compensated firefighter and police unions that helped launch his political career with lots of campaign support, and for their managers to prevent “salary compaction”. Fisher supported pay raises ranging from 11.25% to 23% for the firefighter and police unions, in three or four installments over three years, and single pay raises ranging from 14.9% to 32.3% for their managers, during the first three years of the Great Recession. All of the raises were approved well after the Great Recession started, and many included retroactive pay raises effective up to 6 and 9 months before the union contracts were approved. The firefighter and police union contracts included additional 5% annual “step raises”, and additional periodic “longevity raises”.

The pay raises were approved first in closed session City Council meetings, and then again in public as a formality at the open session City Council meetings referenced in the table below.

The total pay raises included the following (not counting compounding, which actually results in higher total raises):

In addition to the above pay raises, the firefighter and police employees were (and still are) given 5% annual “step raises” in each of the first four or five years after the year they are promoted or assigned to a new position.

In addition to the above pay raises, the firefighter and police employees were (and still are) given periodic “longevity” raises every so many years.

The City is Paying Most of the Employee Pension Contributions Although State Law Allows the City to Pay Only Half

For many years the City of El Segundo has been paying most of the total employee pension contributions, far more than required by state law. The California Public Employees Pension Reform Act of 2013 (PEPRA), enacted as AB 340 and AB 197 in 2012, became effective on January 1, 2013. Under PEPRA, cities may require their employees to pay up to half of their total CalPERS pension contributions. That is half the total of the Employer Contribution plus the Employee contribution.

The City of El Segundo can save more than $3.3 million per year by requiring City employees to pay half their total pension contributions. However, under PEPRA, the City must negotiate this with the city employee unions, and must negotiate from a position of strength, not weakness that will result from new tax increases.

I made that estimate by applying the fiscal year 2013/2014 CalPERS pension contribution percentage data to the calendar year 2012 City employee Total Earnings data, the latest available, which itemizes Regular Earnings and Special Compensation upon which the pensions are based.

Based on spreadsheet calculations made from public record data provided by the City of El Segundo in response to a Public Records Act request, the total CalPERS pension contributions for fiscal year 2013/14 are 47.384% of salary (regular earnings plus all the “special compensation” add-ons in the union contracts) for safety (police and fire) employees, and 23.975% for miscellaneous (non-safety) employees.

Based on spreadsheet calculations made from that same public record data, the City of El Segundo is paying the following percentages of the total CalPERS pension contributions (Employer Contribution + Employee Contribution) for the specified employee bargaining groups:

The City Can Reduce Pension Costs by Changing Pension Plan Options

The City can reduce its employee pension costs by no longer offering the maximum and most expensive pension plan options, at least for new hire employees. The City may be able to do the same for existing employees, at least for their unearned and unaccrued years of CalPERS service credit, if applicable laws, court decisions, and pension plan rules allow it.

PEPRA automatically reduced the maximum percentage and increased the minimum retirement age in the CalPERS pension benefit formulas for safety and miscellaneous employees. However, the City can do better than this by creating a new tier for new hire employees that provides less lavish and less expensive pension plan options.

The City created a new tier for new hire police officers, but that tier was a minimal reform. It changed the 3% @ 50 pension benefit formula to 3% @ 55. Thus, it only increased the full retirement age from 50 to 55, but did not reduce the most expensive part of the formula, the 3%. PEPRA reduced the percentage and increased the age more than El Segundo’s second tier.

It is now obvious that those who claimed the City has no control over its employee pension costs were not telling the truth. And why did they make these claims? To deceive El Segundo voters into approving the Measure A tax hikes on the April 8, 2014 city election ballot. El Segundo voters can vote Mayor Bill Fisher out of office at the same time they vote against Measure A. How convenient!