City Shifts More Retirement Costs to Workers

A new retirement formula was approved this week that will increase slightly what future city workers contribute to their pensions.

The new formula, calculated using an employee's age at retirement and final compensation, will have non-public safety employees hired after July 1 contributing 7 percent of their pay to the California Public Employees' Retirement System.

Currently, the city pays employees' contribution, and then employees reimburse the city 6.7 percent of their 8 percent share.

"These savings will accrue at about $269,000 a year, topping out at about $5.4 million per year in pension savings when the full workforce turnover occurs in about 20 years," said City Manager Rod Gould.

The new formula was already part of a labor contract approved in October with the Coalition of Santa Monica Employees, an umbrella group for more than 1,600 employees belonging to about 10 different bargaining groups.

Contracts with police and firefighters were negotiated separately, and are not subject to the new formula.

"While there is no immediate savings, as we hire new employees and they’re enrolled in this new tier of benefits, over time the city costs for retirement benefits will be reduced,” said Director of Human Resources Donna Peter.

Under the new formula, employees hired after July 1 can get 2 percent of the average of their three highest salaried years as early as age 55. The existing formula is 2.7 percent of their single highest salaried year.

The difference in the cost to the city for the change from 2.7 to 2 percent at 55 equates to about 3.3 percent of an employee's salary, Gould said.

"This change doesn't really help us balance the budget in the immediate term, [but] your successors will thank you for taking this action," he told the City Council on Tuesday night.

Starting in 2013-14, the city’s payments for employees’ contributions to CalPERS will increase 2.8 million annually as the retirement system reduces its assumed rate of return on investments. The costs borne by the city for retirement plans have reportedly swelled from $10 million to $44 million in about 10 years.

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