Under a new state law, the City of Santa Barbara will have a two-tier benefits program with smaller retirement payouts for employees hired after Jan. 1.
The legislation, Assembly Bill 340, will raise the retirement age and lower the California Public Employees’ Retirement System payouts for new employees. Benefits will be calculated using an average of someone’s three highest years of compensation instead of the single-highest year, to prevent “spiking” payouts.
The move comes as many jurisdictions have already implemented or tried to implement a two-tier system. Agencies have been addressing pension reform in a “hodgepodge” way, according to employee relations manager Kristy Schmidt, so the act is a good solution to the need for a two-tier system.
Santa Barbara has $267 million in unfunded pension liabilities, and the new law does nothing to forgive those, she added.
Currently, safety employees earn 3 percent of their highest year’s salary for each year of service and can retire at age 50. If they have 30 years of service, for example, they can earn 90 percent of their highest-ever compensation, including special pays.
New hires will be offered 2 percent at 50 years old or 2.7 percent if they wait to retire until age 57.
Non-safety employees earn 2.7 percent at age 55; new hires will be able to earn 1 percent at 52, 2 percent at age 62 or a maximum of 2.5 percent if they retire at age 67.
These plans are “significantly a less generous benefit” than the current plans, Schmidt told the Santa Barbara City Council this week.
Employees will still be able to include special pays and some other benefits in their compensation, but CalPERS will now cap compensation considered for pensions at $132,120.
The city’s pension fund was “superfunded” in the late 1990s but is now unfunded by $267.8 million, or about 38 percent, out of $700 million. Finance Director Bob Samario said it is likely to take 20 to 30 years to make up those losses.
A big piece of that came from the retroactive raises when public safety employees were changed from a 2 percent at age 50 to 3 percent at 50 formula, which increased pension payouts, according to City Administrator Jim Armstrong said.
In a presentation to the Finance Committee, Samario said the city paid $75.5 million in base salaries, $1.8 million in special pays and $5.7 million in overtime for the last fiscal year.
Click here for more information about labor group agreements with the city and specific compensation data.