To call it a “breakthrough” might be premature. But there are now seven out of the city of Santa Cruz’s 762 benefited employees who say they’ll jump on the pension reform bandwagon. Four lieutenants, two deputy chiefs and a captain of the Santa Cruz Police Department agreed last week to temporarily increase the amount of money they pay into the California Public Employees’ Retirement System by 8 percent (all of which will come after they receive a 4 percent annual cost-of-living raise from the city). The city’s finance department estimates the move will save $101,000 next year.
The seven employees also tentatively adopted a forthcoming “two-tier” pension system that allows new police managers to be promised fewer retirement benefits. Santa Cruz leaders are crossing their fingers that the gesture by police brass will coax the much larger Police Officers Association, representing rank-and-file cops, to follow suit.
“We wanted to take a leadership role and we’re hoping that others in the department will take our lead,” says President of the Police Management Association, SCPD Deputy Chief Kevin Vogel. “I don’t know if the idea has resonated but we’re certainly hoping that will happen.”
Vogel says the managers could opt out of the agreement if the POA doesn’t fall in line. But even if the rest of the police department agrees to the temporary contribution hikes, other employee groups like firefighters and non-public-safety workers will likely be spared the immediate retirement concessions. Santa Cruz Human Resources Director Lisa Sullivan says that’s because back in 2009, firefighters bumped up their CalPERS contribution rates by 2 percent and miscellaneous employees represented by the Service Employees International Union agreed to 10 percent cuts through furloughs. Once their contracts expire in 2011, however, Sullivan says all bets are off.
“True pension reform will happen when the employees’ contracts are open,” says Sullivan. “Two-tier reform is perhaps the most important piece for the future, but it’s not enough.”
By “not enough” Sullivan means that a two-tier pension system will only offer savings when future generations of employees retire and will do little to address the current fiscal crunch. Short-term savings, by most accounts, will only come from similar employee contribution rate hikes to what the police managers just agreed to. Police officers, for example, contribute 9 percent of their paychecks into the statewide CalPERS system, while the city matches it at 36 percent. After the recent concessions, top cops will pay 17 percent and the city will pay 28 percent; hence: quick cash.
Long-term structural change to the pension system depends on what form any two-tier system will take. On that end, two options have been discussed with respect to police officers and firefighters: a “2 at 50” plan and a “3 at 55” plan. The numbers refer, first, to the percentage of pay an employee will receive in retirement multiplied by the number of years spent on the force, and second, to the minimum age they can retire at. For example, when Police Chief Howard Skerry retires in September under the current “3 at 50” plan, he’ll get 3 percent of his roughly $200,000 salary for each of his 30 years on the force, giving him 90 percent of his salary, or about $170,000 per year, in retirement, after deductions for uniforms and vehicle allowance are factored in. If he’d been hired under a 2 at 50 plan, Skerry’s pension would be about $110,000 per year.
Vogel says, he’d “obviously like to see the 3 at 55 plan” over the 2 at 50 version. “Cops already usually work until their mid-50s,” he says.
A 2 at 50 plan, however, would result in 5.3 percent overall payroll savings according to actuarial reports—nearly double the 2.7 percent savings that a 3 at 55 plan would offer. Santa Cruz Finance Director Jack Dilles says he’ll be pushing for the bigger savings.
“We need to continue to stabilize our budget and increase our reserves,” says Dilles. “Pension reform is one way to do it and I think it’s the right thing to do.”
