Wednesday, February 21 , 2018, 10:32 am | Fair 58º


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Santa Barbara Council, City Staff Discuss Pension Reforms to Address $267 Million Shortfall

Finance Director Bob Samario says even with reforms, it will take a 20-year plan to make up for low investment returns and unfunded benefit enhancements

The City of Santa Barbara’s pension system has developed a $267 million shortfall because of low investment returns and a flurry of benefit enhancements in the past decade, Finance Director Bob Samario said at a workshop Wednesday.

A 20-year view of the city’s investment returns for CalPERS, the California Public Employees Retirement System, shows an average rate above state goals. However, with recessions in 2001 and 2008, “this has been a really bad decade” for the retirement system, Samario said.

Even with reforms, which the Santa Barbara City Council discussed Wednesday, Samario said it will take a 20-year plan for the city to resolve the millions of dollars in unfunded liabilities.

Within the past 10 years, there have been benefit enhancements through state legislation that were taken up by Santa Barbara through City Council votes and labor negotiations.

Employee pension payouts are determined by three things: years of service, final compensation (which in Santa Barbara means the single highest yearly salary, including special pays) and a retirement formula.

Santa Barbara’s formulas are 3 percent at 50 for public safety employees and 2.7 percent at 55 for everyone else. For example, a police officer would get 3 percent of the final compensation for each year of experience and can retire at 50 years old. With 20 years of experience, the officer would get 60 percent of the final compensation every year for the rest of his or her life.

In the boom of the late 1990s, investment returns were high and pension programs were well-funded all over the state, so bargaining units were able to negotiate increasing the cap for payouts and more generous formulas. All enhancements to city benefits were negotiated by the City Council, often in lieu of salary raises, according to Kristy Schmidt, the city’s employee relations manager.

Samario said the better benefits applied retroactively to all existing employees, which immediately created unfunded liabilities and was compounded by the recession.

With a defined benefit plan, the city pays enough into the system to fully fund a set amount of benefits, and that rate fluctuates depending on the economy.

Money is paid into CalPERS by both the city and employees, but the city has been paying employee contributions — in addition to its own — for years.

Santa Barbara pays the 9 percent employee contribution for fire personnel and 6.7 percent of the 9 percent for police employees, while other employees now pay almost all of their portion.

What’s more, the city offers “roll-up” benefits, meaning that when it pays an employee’s retirement contribution, that money counts toward the employee’s final compensation and boosts the retirement payout.

While structural changes would have to be done at the state level, local jurisdictions have already taken steps to reform their retirement programs, including Santa Barbara County and the cities of Santa Maria, San Luis Obispo and Ventura.

Schmidt noted that half of City of Santa Barbara employees are within two years of early retirement eligibility, which means the turnover could bring faster savings with reforms.

Realistically, the city can’t negotiate major changes until June 2013, when the safety contract expires. Other employee groups will be up for negotiation earlier, but have “me, too” clauses in their contracts that make concessions contingent on safety bargaining units taking similar ones.

Reform options include:

» “Two-tier” retirement formulas, with less generous formulas for new hires.

» Calculating final compensation by averaging the highest three years, not taking the single highest year.

» Employees paying more or all of their contributions to retirement.

» Discontinuing the “roll-up” so employer-paid employee contributions don’t count into final compensation.

» Discontinuing employer-paid employee contributions altogether for current and future employees (which Mayor Helene Schneider’s proposed pension reform ballot initiative strives to do).

Noozhawk staff writer Giana Magnoli can be reached at .(JavaScript must be enabled to view this email address). Follow Noozhawk on Twitter: @noozhawk, @NoozhawkNews and @NoozhawkBiz. Connect with Noozhawk on Facebook.

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