JANUARY 31, 2007 CITY OF RANCHO PALOS VERDES FINANCE ADVISORY COMMITTEE MINUTES JANUARY 31, 2007 CITY OF RANCHO PALOS VERDES FINANCE ADVISORY COMMITTEE MINUTES JANUARY 31, 2007 CITY OF RANCHO PALOS VERDES FINANCE ADVISORY COMMITTEE MINUTES

MINUTES

CITY OF RANCHO PALOS VERDES

FINANCE ADVISORY COMMITTEE

JANUARY 31, 2007

Chair Clark called the meeting to order at 7:06 PM at the City Hall Community Room, 30940 Hawthorne Boulevard, for the purpose of conducting business pursuant to the Agenda.

ROLL CALL

Roll call was answered as follows:

PRESENT: Clark, Emenhiser, Grimme, James, McLeod, Moon and Nelson
ABSENT: None

Also present were Assistant City Manager Carolynn Petru, Director of Finance and Information Technology McLean, Deputy Director of Finance and Information Technology Downs, Senior Administrative Analyst Gyves and John Bartel from Bartel Associates.

APPROVAL OF AGENDA

Chair Clark requested a motion to approve the agenda. Member Emenhiser motioned for approval of the agenda and Member Nelson seconded. Hearing no objection, Chair Clark ordered approval of the agenda. Chair Clark stated that items four and five were combined on the posted agenda and will be considered as one item.

FAC ASSIGNMENT – PENSION, POST RETIREMENT HEALTH CARE AND SIDE FUND LIABILITY

Director McLean introduced John Bartel from Bartel Associates and informed the FAC that he will be providing a summary of the information that was provided to the FAC at the January 10, 2007 FAC meeting. Director McLean informed the FAC that John Bartel and Mike Garcia from Tierra West, the City’s compensation survey consultant, provided City staff with the same presentation that was given to the FAC on January 10, 2007 that was attended by 43 of the 49 full time employees. Mr. Bartel provided the FAC with a presentation using handouts that were included in the agenda.

QUESTIONS AND DISCUSSION - FAC ASSIGNMENT – PENSION, POST RETIREMENT HEALTH CARE AND SIDE FUND LIABILITY

Member Emenhiser asked if cities participating in a retiree health care program make any adjustments when the person turns 65 years of age and becomes eligible for Medicare. Mr. Bartel stated that approximately 80% to 90% of cities that provide a retiree health care benefit reduce the benefit when the participant turns 65. Mr. Bartel followed up to say that cities providing a defined contribution retiree health care program do not have the need or the ability to make such restrictions. Member Emenhiser also asked how many cities in California participated in some type of defined benefit retiree health care program. Mr. Bartel stated that he would estimate that approximately 80% to 90% of the cities in California participate in some type of defined benefit retiree health care program. Mr. Bartel also stated that the trend is moving towards providing employees with a defined contribution retiree health care program.

Mr. Bartel stated that he recommends to his clients wishing to provide retiree health care that they provide a defined contribution plan because of its triple tax benefit: the contributions are pre-tax, the funds grow tax free and the withdrawals, if used for approved medical costs, are tax free. Analyst Gyves stated that the institution of a defined contribution retiree health care program would not be much of a benefit to older employees that are close retirement, which Mr. Bartel agreed with. Analyst Gyves asked if the City could institute a catch-up provision for older employees that have worked for the City for a number of years. Mr. Bartel stated that he believed that some type of catch-up provision could be instituted, but also stated that an attorney would be better suited to provide the details of such a provision.

Chair Clark referred to a previous statement that Mr. Bartel made that cities in California are starting to move away from the 2%@55 formula to an increased benefit formula, but that most of the cities used in the compensation survey are still using the 2%@55 formula. Mr. Bartel agreed with the statement and stated that the cities used in the compensation survey tend to be smaller cities that provide additional retiree benefits other than the CalPERS 2%@55 formula, such as retiree medical insurance and/or a 457 contribution. Mr. Bartel stated that the cities that are increasing their 2%@55 CalPERS benefit formula are mostly moving to a 2.7%@55 formula.

Member McLeod asked Mr. Bartel what CalPERS benefit formula could the City institute to prevent the City from being a “farm team” where employees work for a short period of time to gain experience and then move on. Mr. Bartel stated that the 3%@60 formula is considered the best because it puts the most dollars into the hands of employees and is considered the gold standard of benefit formulas, but is also the most expensive plan available. Mr. Bartel stated that he believes the only benefit formula above the 2%@55 formula that is designed correctly is the 3%@60 formula. Member James suggested that if the FAC was going to recommend increasing costs to the City Council that it might be more appropriate to leave the 2%@55 formula alone and concentrate on instituting a retiree health program. Mr. Bartel agreed with Member James’ suggestion.

Chair Clark asked Staff if there were cost estimates associated with the increased CalPERS benefit formulas. Deputy Director Downs informed the FAC that the cost estimates were located on page eight of the staff report. Mr. Bartel stated that the total cost, which does not necessarily have to be paid for by the City, to increase the benefit formula from 2%@55 is $136,000, $227,000 and $300,000 for plan formulas 2.5%@55, 2.7%@55 and 3%@60, respectively.

Mr. Bartel stated that he does not recommend moving to a two tiered system that incorporates a defined contribution program or 2%@60 plan formula for new employees because of the difficulty it will present in hiring new employees while saving the City a minimal amount of money.

Member Emenhiser asked Mr. Bartel about cost projections related to the potential defined contribution retiree medical program. Mr. Bartel referred to slide 24 of his presentation and stated that the total cost is $103,000 annually, which is based on $50 per pay period and includes full-time and part-time staff. Member Moon asked what the cost would be for full-time employees only. Deputy Director Downs stated that the cost for only full-time employees would be $63,700.

Member Emenhiser asked Mr. Bartel if it is common to ask for employees to pay a portion of the increased cost associated with moving to an enhanced benefit CalPERS formula. Mr. Bartel stated that it is common for employers to ask employees to pay for a portion of the increased cost associated with moving to an enhanced formula, but also stated that it is typically not a significant portion of the total cost.

PUBLIC COMMENTS

Ron Dragoo, Senior Engineer, stated that it took two years to recruit and hire a Senior Engineer and urged the FAC to provide the City Council with a recommendation that will make the City more competitive with other cities. Member Grimme asked Mr. Dragoo why it was so difficult to recruit a Senior Engineer. Mr. Dragoo stated that the reason varied from person to person, but was mainly associated with salary and pension benefits.

Holly Starr, Recreation Manager, stated that she would gladly pay for an increased benefit formula. Ms. Starr also stated that residents of the City deserve talented staff to run the City and that she has worked here for twenty years and has seen many qualified staff members leave the City for better compensation packages. Member Emenhiser asked Ms. Starr if staff was leaving because of salary or benefits. Ms. Starr informed the FAC that it was her belief that it was associated with retiree benefits. Member McLeod asked Ms. Starr if she would be willing to pay into a retiree health care program. Ms. Starr stated that she would be willing to do so, but feels as though on a dollar for dollar basis, the increased CalPERS formula would be more beneficial.

Gina Park, Assistant to the City Manager, stated that she handles recruitment for the City and has done so for the last ten years. Ms. Park stated that the City has had to become more aggressive in recruiting because there are not enough qualified people to fill the positions. Ms. Park also stated that there is a shortage of professional level candidates, such as engineers and accountants. Ms. Park stated that when she is negotiating salary with potential employees that they are knowledgeable when it comes to retiree benefits and realize that other cities are offering more. Member James asked Ms. Park if the she knows what employees think is the most important aspect of their compensation package. Ms. Park stated that it is different for each group of employees based on age, how long they’ve been in their career and their career goals. Member Grimme asked Ms. Park what the turnover rate for the City was. Ms. Park stated that the annual turnover rate for the City was about 10% annually.

Nancie Silver, Recreation Program Supervisor, stated that she has worked for the City twenty years and that she is extremely interested in seeing the City institute a retiree health program. Ms. Silver also mentioned that the City had a high turnover rate associated with part-time staff, which are staff members that are less likely to come to FAC meetings.

Kit Fox, Associate Planner, stated that he has worked for the City eleven years and that he is supportive of instituting a retiree health care program but thinks the pension benefit formula should be left as is. Mr. Fox also stated that he was against the City instituting a different pension formula for new employees because it would cause morale problems and make it difficult to recruit.

Teri Takaoka, Accounting Technician, stated that she agreed with the comments made by both Ms. Starr and Ms. Silver.

FAC RECOMMENDATIONS AND COMMENTS – PENSION, POST RETIREMENT HEALTH CARE AND SIDE FUND LIABILITY

The FAC discussed the numerous options and their associated costs and effects on employee recruitment and retention. Based on these discussions, the FAC developed the following three options to be presented to the City Council with a recommendation to select Option 2:

Option 1 (Total City Cost of $196,000 Annually):
 Increase the current pension benefit formula to 2.5% @ 55 and require employees to pay the resulting 1% increase to the employee contribution. The employer and employee contributions would be about $100,000 and $36,000, respectively.
 Establish Defined Contribution Post Retirement Health Care Accounts for all full-time employees, with the following required contributions:
o Employee contribution of 2% of salary, or about $72,000 annually; and
o City contribution of $75 per pay period for each full-time employee, or about $96,000 annually.

Option 2 (FAC Recommended Option with a Total City Cost of $96,000 Annually):
 Make no changes to the pension benefit formula.
 Establish Defined Contribution Post Retirement Health Care Accounts for all full-time employees, with the following required contributions.
o Employee contribution of 2% of salary, or about $72,000 annually; and
o City contribution of $75 per pay period for each full-time employee, or about $96,000 annually.

Option 3 (Total City Cost of $64,000 Annually):
 Make no changes to the pension benefit formula.
 Establish Defined Contribution Post Retirement Health Care Accounts for all full-time employees, with the following required contributions:
o Employee contribution of 1% of salary, or about $36,000 annually; and
o City contribution of $50 per pay period for each full-time employee, or about 64,000 annually.

The FAC also made the following recommendations and comments to the City Council:

 The City should perform a current salary survey, since the last survey performed in 2002 may be outdated;
 Consider making an assignment to the FAC to review the options for providing health insurance benefits to part-time employees in the future;
 Do not require an employee contribution to the pension plan without an enhancement of the pension benefit formula; and
 Do not institute a decreased pension benefit formula for new employees, resulting in a two tier system.

Additionally, the FAC made the following recommendations to the City Council regarding the Side Fund Liability:

 Pay off the Side Fund Liability.
 Options to payoff include:
o Use of the City’s unrestricted monies (the FAC understands the City’s competing needs for unrestricted monies), or
o Re-finance the liability at a lower interest rate.
 Instruct Staff to explore the details of re-financing with the City’s financial advisor and report back to the City Council with a financing plan.

 

DIRECTOR/MEMBER REPORTS

Director McLean stated that a staff report regarding the establishment of an oversight committee for the Water Quality and Flood Protection Program was presented to the City Council on January 16, 2007. Director McLean also stated that the FAC will still be responsible for reviewing the fiscal impact of the potential loss of the Storm Drain User Fee as part of the Five-Year Financial Model that will be presented to the FAC in April.

ADJOURNMENT

Member James moved and Member Emenhiser seconded a motion to adjourn the meeting at 11:48 PM. Hearing no objection, Chair Clark ordered the meeting adjourned.

_____________________________
Chair, Finance Advisory Committee

ATTEST:

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Gary Gyves, Recording Person