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State Pension Reform Will Spell Relief For Santa Monica, But Not For A While

Santa Monica Real Estate Company, Roque and Mark


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Harding Larmore Kutcher & Kozal, LLP  law firm
Harding, Larmore Kutcher & Kozal, LLP

By Jason Islas
Staff Writer

September 19, 2013 -- A recent State law designed to help California cities rein in runaway pension costs could help Santa Monica lower its $40 million-a-year pension bill, but not for many years.

The California Public Employees' Pension Reform Act (PEPRA), which was adopted in September 2012, outlines moderate reforms to the State's public employee pension system that lawmakers hope will ease the financial burden put upon local cities and public agencies.

But with the law only affecting the pension plans of those employees hired after January 1, 2013, Santa Monica and other cities won't see any real savings from the PEPRA until new hires start retiring, which could take decades.

“(U)ntil there is substantial turnover in existing staff there will not be large savings,” said Santa Monica's Director of Finance, Gigi Decavalles-Hughes.

And since some of the reforms outlined in PEPRA are voluntary, the amount of time it will take to implement them is “reliant on our future collective bargaining agreements,” Decavalles-Hughes said.

Because Santa Monica is a member of the California Public Employee Retirement System (CalPERS), it has seen its pension costs jump from $10 million a decade ago to about $40 million a year.

That jump is largely due to longer life spans and low returns on investments made by CalPERS, which CalPERS requires the cities to make up.

Decavalles-Hughes said that the City has done a lot to try to contain those costs, including asking employees to shoulder more of the financial burden of increasing pension costs.

In March 2012, the City Council voted to create a second tier of employee retirement benefits for all employees hired after July 1, 2012.

The biggest change was to lower employees' pensions to two percent of the average of their highest-paid three years, instead of 2.7 percent of their 12 highest paid consecutive months.

Public safety employees were not affected by the change, however.

Under PEPRA that changed and Santa Monica adopted a third tier, applicable to public safety and non-public safety employees alike so long as they were hired after January 1, 2013.

Tier three extends the age that non public safety employees can retire from 55 to 62 and for police and firefighters from 50 and 55 respectively to 57.

Currently, the of the City's more than 1,700 employees, about 133 are under the tier two or tier three pension plan.

The City has also negotiated to get public safety employees to pay more of their pension share, bringing their share up from nothing to three percent.

Officials estimate that for every one percent public safety personal contributes to their pensions, the City saves $420,000.

Some of PEPRA's reforms are more immediate.

Under PEPRA's changes, employees forfeit pension benefits if convicted of a felony, for example. The law also eliminates double-dipping, the practice in which an employee continues to work in another department or city after retiring, consequently receiving a paycheck and a pension payment.

By adjusting pension payment plans so that they are based on employees three highest paid years instead of highest paid consecutive 12 months, PEPRA seeks to eliminate “pension spiking.”

That's when employees who are expecting to retire soon enjoy a last-minute pay raise in order to artificially inflate their pension.

Exactly how much does this City hope to save through PEPRA's reforms?

“We do not have sufficient data to make this estimate at this time,” Decavalles-Hughes said, but the reforms can only help.

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