AgdaPkt 2014-01-13 Interview, Closed and Regular

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7.2.D. - Page 2 ANALYSIS Despite PEPRA reforms, intended to control costs over the long -term, no significant reduction of the unfunded liabilities for current retirees is anticipated in the near future. While the overall economy continues to improve, the impacts of the significant financial losses from the recession result in projected increases to CaIPERS rates. Furthermore, recent actuarial policy changes made by CaIPERS to shorten the amortization and asset smoothing periods, while intended to reduce overall funding level risk, have resulted in higher rates for employers. To address the increasing pension costs, the City Manager has worked with executive management staff to develop a plan to implement reforms as required by PEPRA by eliminating the employer -paid member contribution and to increase employee contributions to pension. The proposed amendments to the Executive Management Summary of Benefits further increase the employee contribution to the City's share of pension from 7% to 12% over the course of three years. Furthermore, as the City may no longer pay the employee share of pension for new CaIPERS members under PEPRA, the recommended changes also include a plan to phase out the employer -paid member contribution (EPMC) for all employees. In the current fiscal year, EPMC will be reduced by two percent (2 %). A resolution to amend the City's contribution structure with CaIPERS for the current fiscal year will be presented to Council as soon as administratively feasible. As required by CaIPERS, a separate resolution will be presented each of the following two fiscal years to further reduce EPMC in each of these years, such that the City's payment of EPMC will be eliminated in early 2016 at which point executive management employees will be responsible for paying the full member contribution toward their pensions. The amendments to the Executive Management Summary of Benefits also reflect updates to pension formulas and other retiree benefits that were implemented in 2013 to comply with PEPRA. Additional amendments include minor updates to existing language to reflect current City classifications and policies. The salary plan for Executive Management classifications was last amended in July, 2011 based on market survey data. Since that time, all executive management positions accepted a salary freeze with respect to merit increases for at least one year. In recognition of the increased cost of living as well as the increased contributions of employees to pension costs, the City Manager proposes a three percent (3 %) increase to salary ranges in the executive management salary plan effective July 1, 2013. The increases to the salary ranges were included in the 2013/14 budget adopted by the City Council in June of 2013. Since the City's current payment of EPMC is included in the employee's salary, the proposed elimination of this payment will result in a reduction of both the employee's take -home pay and pension. The proposed salary increase will offset this negative impact to employee income, while still increasing the employee share of pension costs and making structural changes that improve the fiscal sustainability of this benefit. This adjustment will be made to the salary ranges only;