The new plan, approved on a 4-0 council vote (with Jim Dobbie absent) on Jan. 16, shifts the entire portion of employees' share of pension costs from the town onto the employees, caps vacation and sick-leave accrual and the town's contribution to health-care premiums, and creates a two-tier retirement system (one for current employees and another for new hires). It also eliminates post-retirement health benefits for new hires.
The changes are effective July 1.
Even with salary increases for the 10 affected employees, under the plan the town will save, in the first year, $46,000 of what it now pays the state's public employee retirement agency, according to a report by City Manager George Rodericks.
The town currently pays $92,000 annually for the employees' portion of pension contributions to the California Public Employees' Retirement System (CalPERS), which administers public pensions. That figure represents 7 percent of the affected employees' salaries. The town also pays an additional amount charged by CalPERS to public agencies.
The council passed an earlier compensation cost-cutting resolution in November, with council members Jerry Carlson and Elizabeth Lewis — as well as the affected employees — criticizing the plan for creating too much of a financial burden on employees too quickly. The original resolution called for incremental increases in employee contributions for retirement costs over an 18-month period, at which point employees would pay the entire amount.
In December, with Cary Wiest replacing Kathy McKeithen on the council, the issue was taken up again, and staff was directed to bring back a resolution that would slow the pace of the incremental changes, perhaps stretching them out over three or more years.
Mr. Rodericks presented the council with two options last week: Option 1 spread the incremental changes over three years, and Option 2 put the shift in place by July 1, but raised salaries 3.5 percent. The second option, approved by the council, was favored by most employees, Mr. Rodericks said.
The benefit to employees of that option, he said, is that it will have less impact on the portion of compensation that pensions are calculated on. That's because when the town pays an employee's share of CalPERS contributions, that amount is added to the employee's compensation total for the purpose of calculating his or her pension, he explained in the report.
"Option 2 provides for an increase in the salary range of half of the cost of the pension obligation in an effort to share the burden and offset the impact," he said.
The town benefits from Option 2 as well, he said, because it saves $43,000 more than Option 1 over a three-year period. One reason for that is that the first option includes funds for a merit bonus program as a means to offset the impact of the shift of pension costs to employees. The original resolution passed in November and rescinded the next month also included the merit bonus program.
In his report, the city manager said employees support the cost-cutting policy objectives of the council, and appreciate the chance "to be engaged in the discussion of meeting those objectives."
"Staff felt it was important to note that they are unrepresented and feel that (they) can remain unrepresented so long as they are given the opportunity to participate in the discussion and are treated fairly," the report said.
The resolution doesn't affect most of the town's police officers, whose union contract expires Sept. 30. Labor negotiations with the Atherton Police Officers' Association are expected to begin this spring.