AgdaPkt 2014-02-10 Closed and Regular

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9.A - Page 2 • Restrictions on supplemental defined benefit plans and deferred compensation contributions Other provisions include expanded limitations on individuals who work for a CaIPERS- covered agency after retirement, restrictions on retiree health care vesting schedules, felony forfeiture, and a prohibition on retroactive benefit increases. PEPRA also includes guidance and revised rules for changing employee contributions for current employees, subject to collective bargaining where applicable. Prior to PEPRA, the City negotiated and implemented a second tier of retirement formulas with all labor groups and unrepresented employees. These changes resulted in new employees hired after October, 2011 receiving a lower pension formula. Labor groups also agreed to increase the employee's share of the pension cost. The enactment of PEPRA added a third tier to the City's retirement plans, subject to the additional conditions as outlined above. The City met with all labor groups in December, 2012 to discuss the impact of the mandatory changes for new members as prescribed by PEPRA, and has complied with all mandates as of January 1, 2013. ANALYSIS The goals of PEPRA are to increase long-term fiscal sustainability for CaIPERS and the other covered public employer pension funds. Reduced pension formulas as well as new limits on pensionable compensation are expected to reduce the overall pension costs for new employees, and preclude certain practices that may increase an employers' unfunded liability. While these reforms will decrease the cost of pensions to employers over the long term as new members replace current members upon their retirement, they will have little short-term impact on rates as they do not impact employer costs for current employees and retirees, nor do they reduce the already accrued unfunded liability. In fact, in the near-term, CaIPERS rates continue to increase as a result of investment losses due to the recent recession, and new CaIPERS-adopted funding policies related to the amortization of unfunded liabilities. The CaIPERS Board is also anticipated to adopt new assumptions regarding the mortality rate to recognize the longer lifespan of retirees, which will further increase the cost of retirement benefits. Consequently, the City can expect that pension contribution rates will continue for some time to be a significant and increasing budget expense. In addition to these financial implications, PEPRA results in increased complexity in the administration of benefits and payroll as there are different benefit formulas and rules that must be managed. FISCAL IMPACT There are no direct fiscal impacts associated with this report. ENVIRONMENTAL REVIEW This is not a project under CEQA.