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HomeMy WebLinkAbout03. Responses from labor negotiation and benefit consultants ti N1/4.....__` ,-. . .. - iiii. . .... . .....„.„,..6,... .,2„Y,,. I___ .. . Yy • _ .. .. , , ow,. . , , . lor . ili r 1r” f _ i.� .�.. .. TRATEGIES TO CONSIDE '- t "If I could figure out how to portray OPEB in a costume, I would go as unfunded OPEB to my next Halloween party. I can't think of anything scarier." • —Phil Moore, city manager,Alma, Michigan ix years have passed since the Governmental Accounting Standards Board (GASB) issued ISits Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions. During that period, many state yV and local governments have done little to address their retiree medical liabilities and cost structures.Their esca- lating unfunded liabilities are shown in the footnotes to their financial statements,but their management teams. and elected officials,have generally not mitigated costs or proactively managed the liabilities downward.As a result.the national total of unfunded liabilities for these benefits alone is approaching$2 trillion in 2011,dwarf- ing the"public pension problem"that captured national media headlines last year. ' Not every governmental employer has a problem with other pastemployment benefits(OPEB),but many do. Ironically, the only generalizations that can hon- estly be made about OPEB plans nationwide is that they are not homogeneous and they defy general- ization. Anecdotally, only about a half of all state and municipal employees receive significant lifetime retiree medical benefits before reaching Medicare age. A substantial number of this subset receives generous benefits, while at the other end of the spectrum, many public-sector employers provide little or no financial _ a _ ' ° •-- assistance to help their retirees defray medical expens- es, beyond the implicit subsidy of providing access to their group insurance plans at the same premiums paid by active employees. MISTAKES OF THE PAST In retrospect, the most common managerial and leadership error of "complacently generous" govern- mental employers was their failure to begin fully funding their OPEB benefits immediately after GASB issued Statement No. 45. Instead of reining in their The views expressed in this article are the author's and do not neces- sarily reflect those of the Got emrnent Finance Officers Association. : ' GIRARD MILLER J benefits when the numbers arrived at the 1930s. which lingered for more their doorstep, most made no chang- Ironically, the only generalizations than a decade. With real property es and continued expanding their that can honestly be made about values in many states down signifi- payrolls with additional employees. OPEB plans nationwide is that they cantly, markets suffering a long pipe- Headcounts increased all the way line of underwater home mortgages into the first nine months of the Great are not homogeneous and they defy that are heading toward foreclosure, Recession that began in December generalization. and unemployment stubbornly high, 2007. As revenues thereafter plum- given corporate reluctance to expand meted, governments laid off employ- production in the face of excessive ees,declared furloughs, cut services, capacity, there is no reason to expect and further deferred funding of retir- rapid revenue growth any time soon. ee medical benefits. In addition, the unfunded liabilities of Tax revenues will eventually recover from depressed levels, the nation's public pension funds doubled during the 2007-10 but nobody expects a nationwide return to 2007 levels,adjust- period, making matters more complicated as financial mar- ed for inflation, for another three or four years. Meanwhile, kets tumbled and recovered only two-thirds of their market retiree medical costs continue to escalate far faster than losses in the ensuing economic recovery. general inflation,governmental revenues,and the investment returns on general fund assets.The hole keeps getting deeper As a previous Government Finance Review article explained.' governments that are experiencing OPEB (and pension) for jurisdictions that have procrastinated. funding problems should not expect those problems to be In this context,many public managers and elected officials solved by economic growth alone in this decade.The Great need to confront the realization that their governments can- Recession brought the worst percentage decreases in eco- not afford the benefits promises made to public employees in nomic activity, production, employment, and equity (stock the past. OPEB costs under pay-as-you-go financing will auto- and real estate) market levels since the Great Depression of matically double in this decade—and ultimately quadruple, Exhibit I: Alternative Annual OPEB Contributions C •Pay As-You-Go ■Current ARC Funding •Potential GASB Funding Time in Years 30 Government Finance Review I February 21)1 1 Exhibit 2: Year Projection — Unfunded OPEB Liabilities C 0 0 0 0 0 O Pay-As-You-Go Current ARC Funding Ramp-up ARC Funding Potential GASB Funding or worse.Actuarially, most unfunded employer contributions designing market-competitive compensation and benefits for OPEB plans should be doubled immediately just to put plans need to keep the private-sector experience in mind. plans on a track toward eventually achieving a proper finan- So far, however, the major public employers that maintain cial footing. For employers with high retiree medical insur- unsustainable benefits plans have shown relatively limited ance cost structures, extremely underfunded pension plans, evidence of serious retrenchment;and bond rating agencies and tax limitations(either because of law, natural economic and municipal bond investors have largely failed to penalize limits, or taxpayer rebellion),the most likely scenario for this issuers that have unsustainable retirement obligations,which decade will be multi-year hiring freezes and virtually no sal- allows unsound practices to continue. ary increases. The answer for most private-sector CFOs was to jettison LONG-TERM VERSUS SHORT-TERM STRATEGIES their OPEB plans quickly after the Financial Accounting What measures can financial professionals recommend Standards Board required them to record actual costs and to their senior executives? What policy advice should they investors noticed the impending give elected officials, who are pressured constantly by public funding difficulties. Only a minor- employees and their unions to con- Governments of large corporations (and very Governments that are experiencing tinue often-unsustainable benefits and few small employers) now provide OPEB funding problems should not simply "kick the can" to their succes- any retiree medical benefits at all, expect those problems to be solved sors and future taxpayers? Haw can and most of them limit the benefit public employers balance the dilemma to a post-Medicare supplement or a by economic growth in this decade. of unsustainable long-term costs and defined contribution. Public officials short-term demands for public services who are responsible to taxpayers for and stable employment relations? February 2011 I Government Finance Review 1 i r I. Get the Costs and Make Them Visible in Public. years under the different scenarios. (The third, "ramp-up The first step is to fully understand and document the to full ARC"scenario depicts the projected results of incre- cost structure of the jurisdiction's retirement benefits mentally increasing the funding rate over several years to plans. This means asking actuaries for multi-year projec- smooth the budgetary impact.) This will make it clear to tions using discount rates and amortization periods that elected officials, labor representatives, taxpayers, and the are consistent with the announced views of the GASB media that the consequences of inaction are a massive under its formal review of relevant accounting standards' increase in unfunded liabilities that will be deferred to the The amortization period for unfunded pension liabilities next generation. Constituents can be reminded which of should be aligned with the average remaining service life these unfunded liabilities represent the benefits payable to of current employees, which could increase employer current retirees and employees, in addition to the costs of pension costs by as much as 50 percent in many jurisdic- these benefits to replacement workers. tions. Ultimate cost increases for full actuarial funding of 3. Solve for the Long Term First.The best advice govern- retirement benefits will likely range from 50 to100 percent, ment officials can follow is to begin with the long-term especially for employers with niajor unfunded OPEB structural problem first. Many public employers have liabilities and pension underfunding at current market begun to attack the long-term problems of their pension levels. funds' sustainability by introducing Once these data are obtained, The first step is to fully understand new benefits tiers that roll back bene- the financial staff can then assess fits granted in the halcyon years of the whether the employer has any real- and document the cost structure of Internet bubble, leading up to 2000. istic hope of making these actu- the jurisdiction's retirement benefits New benefits tiers usually begin with arially required contributions. In plans. the new hires first, although some some cases, a combination of pay employers also make plan changes freezes, personnel attrition, and for incumbents, if state laws and judi- other cost-cutting measures will cial precedent allow. For OPEB, the be sufficient to fund the catch-up best place to begin is also with new financing required for the pension and OPEB plans. But employees, for whom the labor market seldom offers a in many cases, it will become obvious that something competitive post-retirement medical benefit. A new ben- has to change. ef its structure for such employees is often required. 2. Provide Visual Representations.Exhibits 1 and 2 depict Cost-cutting options for many employers with unsus the kind of visual presentation of OPEB costs that financial tainable "full cost" OPEB plans include: 1) trimming the professionals can develop to better portray the intermedi- defined benefit back to a post-Medicare supplement, and ate and long-term consequences of current funding prac- retirement providing early retirement and spousal/dependent retirement benefits only through a defined contribu- tices.The same graphics should be developed for pension lion plan, for which the employer costs can be better costs as well, and these can be combined to show the controlled. Even if employers just limit a more-generous cumulative impact of all deferred retirement plan costs. defined OPEB benefit to a Medicare supplement of$10 to The first financial exhibit should display the projected $20 a month for each year of service (with a CPI adjust- path of current contributions over 15 or 20 years, if the ment hereafter), the actuarial cost of that benefit for new employer continues to fund OPEB on a pay-as-you-go hires can he made more affordable. Employees can be basis, as well as the actuarial projection using current told that this benefit is available to them only if they bear assumptions, and the actuarial cost curve if GASB's pre- one-half of the actuarial cost, which further reduces the liminary views are implemented to require shorter amor- employer's cost — while providing a market-competi- tization periods. tive benefit. In the current economy, such benefits are The second exhibit should illustrate the resulting projec- increasingly rare in the private-sector markets from which lion of the OPEB plan's unfunded actuarial liabilities in 15 employees are recruited. Some employers might discon- 32 Government Finance Review 1 February 21)11 tinue retiree medical benefits altogether, but this could 5. Reform Benefits for Incumbent Employees. The next, require adjustment to pension benefits, if they provide and often the most difficult, plan design change is reform- insufficient retirement income replacement. ing the benefits payable to current employees. Legal If it is affordable and market-competitive,public employ- issues are likely to arise here, as each state has its own ers can then also consider the feasibility of an employer- laws (with limited case law) regarding the vested rights matched defined contribution plan for OPEB benefits. For of employees to receive retiree medical benefits. In some example, the employer can provide an equal match to an states,the OPEB benefit is a gratuity and can be cancelled employee's fixed-dollar or percent-of-salary contribution or modified by the plan sponsor. In others, however, the toward a retiree medical benefits savings account. This courts might find that employees have vested rights similar account operates similarly to the employee's deferred to those regarding pension benefits. compensation, except that it will be tax-free when with- Beyond legal concerns, there are also moral and morale drawn for qualified purposes. and contributions are issues to consider when modifying benefits of incumbent mandatory instead of discretionary. If employees wish to employees. For example, a fully vested employee who decline the benefit and avoid making OPEB contributions, has satisfied all the age and service requirements for a they can be allowed to opt out irrevocably. full OPEB benefit has a strong claim that the benefit can- 4. Require Hefty Employee Contributions. The second not be reduced. At most, public employers in such cases step public employers with funding problems can take is might attempt to raise the distribution age by a few years, requiring that all employees (including current employ- increase the employee contribution, and cap the annual ees) pay a substantial share of the actuarial cost of their benefit with a CPI escalation limit. Such measures can retiree medical benefits. Some consultants recommend mitigate costs while still recognizing the employees' legiti- that employees should eventually bear one-half of the nor- mate claims to the core benefits they have already earned mal cost of their OPEB benefits.This assures that workers through prior service. appreciate the full value of the benefit.When retiree medi- For younger workers, the employer has a stronger case cal benefits are free, employee demand is unchecked, and an easier path to modifying the benefit structure, if and it comes as no surprise that retirees make no effort to curb costs. Employers nationwide will eventually have to systematically increase their employees' share of these costs— often from zero to a number closer to 5 percent of pay for plans with generous pre-Medicare benefits. Even with employees paying half the cost, such OPEB benefits will still exceed those available in the private sector. Sponsors of the most-underfunded OPEB plans need to consider requiring employees to pay an equal share of the full actuarial cost of all retiree medical benefits that are payable before the employee reaches the Medicare - eligibility age of 65. Strategically, these benefits can be characterized as"early retirement medical benefits"to dis- tinguish them from benefits payable after age 65 and those L more commonly available in the private sector. For the • Medicare supplement, the employee contribution could be set much lower. By pricing the pre-Medicare benefit NNk fully,employers can create incentives for some employees A\ to turn down the benefit and work more years to achieve the lower-cost Medicare supplement. The longer employ- ees work, and the later they retire, the more favorable the _0> -. "�'":: .. outcome for both the OPEB plan and the pension fund. February 2011 Government Finance Review 33 state law allows. In addition to rais- Employers should not deceive them- ing the age and service eligibility Begin with the long-term rm 5tr i is t_tt�l selves that a defined contribution OPEB requirements and establishing a cap problem first. plan will ultimately provide employees (based on a dollar amount or CPI/ with a benefit of equal value to a tra- inflation) on the annual benefit, ditional defined OPEB benefit. Unlike OPEB plan reformers can explore pension funds, which can usually earn the feasibility of restructuring the investment income at rates exceeding benefit to a tax-free monthly retirement medical stipend general inflation, OPEB plans face medical cost inflation of$10 to$20 monthly for each year of service. Vesting for that typically outruns the investment rate of return. This such employees should be revised upward, in many cases, forces employers and contributing employees to subsidize to strengthen employee retention. the defined benefit OPEB plan at levels that are simply not 6. Establish a Defined-Contribution OPEB Benefit. One provided in the private sector.The real issue is not whether of the most powerful tools available to public employers a defined contribution plan will replace its predecessor seeking to restructure their OPEB benefits is a defined plan— it won't—but whether it is affordable, sustainable, contribution retiree health savings plan feature that can and competitive. be offered as an alternative or substitute. For most new Buy Out Vested Employees' Benefits. One innovative employees, a defined contribution OPEB benefit will still strategy, used by the City of Beverly Hills, California, is exceed any comparable competitive benefits they might worth consideration by employers with strong borrowing obtain in the private sector,and younger workers typically capacity, sufficient short-term cash flow, and a long-term prefer the flexibility and vesting features. Finance officers view of their OPEB cost structures. Beverly Hills had pro- must take into account that any employer share will vided a relatively generous conventional retiree medical require an immediate budgetary expenditure that cannot benefit with substantial unfunded accrued liabilities. The be deferred in the way defined benefit OPEB plans have operated, which could create a cash-flow issue. But to the city bought out a substantial number of vested incumbent employees for the fair actuarial value of their accrued ben- extent that very few public employees are being hired (as efits, on a voluntary exchange basis.The city sold taxable governments use the money to instead pay the escalating costs of retiree benefits), the incremental cost of paying notes (secured by lease revenue on a municipal parking a small defined contribution to a handful of new workers structure), with a borrowing cost of 4.5 percent over 11 might not be a major issue. years. and it used the proceeds to compensate employees for their accrued benefits. The city created a defined contribution OPEB benefit for new employees and offered incumbents the option of receiving the actuarial value (using a 6 percent discount rate) of their current OPEB accumulation, in the form of a mandatory contribution of 20 percent of that fair value to a health savings plan, with the balance in taxable cash .0111. and/or deferred compensation. Employees who received cash had a one-year waiting and vesting period, and the balance of their exchange value was transferred to either a 457 deferred compensation,a pre-existing 901(k),or a tax- deferred 415(m) benefits plan account, in such amounts as each employee designated, up to the Internal Revenue Service legal limits. About 58 percent of the city's eligible workers opted to receive the exchange benefit and disclaim the previous defined OPEB benefit.The city anticipates substantial long- 1.1 Government Finance Review I February 2011 term savings from a $260 million and designed thoughtfully. A cohe- reduction in accrued unfunded lia- One of the most powerful tools sive labor relations strategy should be bilities as a result of this strategy. available to public employers seeking developed and must be supported by As with any bonded strategy, this elected officials to be effective. y gy, to restructure their OPEB benefits is approach converts a soft liability into a hard liability.but when com- pared defined contribution retiree health CONCLUSIONS pared with benefits bonds issued savings plan feature that can be Many governmental employers to fund a defined-benefit OPEB offered as an alternative or substitute. have avoided material unfunded trust portfolio,there is less leverage OPEB liabilities, but most of those and less inherent investment risk that provide especially generous ear- (which is now transferred to the ly-retirement medical benefits now employees rather than the employ- face a dismal future unless they act er). The city viewed the previous soft liability as a rapidly soon to mitigate costs. Long-term solutions that affect future escalating, uncontrollable cost, and the new hard liability employees are helpful, but they typically fail to offset immi- as a known, lower, fixed cost:' nent cost increases. Increased employee contributions for 8. Employ Carrot and Stick Strategies. This gives public OPEB benefits will become far more common in the near employers a powerful enticement to induce incumbent future. Where permitted by state law, public employers are workers to convert from a costly defined benefit program likely to begin restructuring benefits obligations to current to a less costly defined contribution program for OPEB. employees as well as new hires, and the sooner this process For employers that might use a different discount rate begins, the greater the cost savings. Innovative financial or other actuarial assumptions to value the employees' strategies can be considered, but they are, ironically, best benefits, the savings could be even greater. Blending suited for those whose balance sheets and operating budgets the buy-out option strategy as a "carrot" with a "stick" of need help the least, and infeasible for employers that need higher mandatory employee contributions for early retiree the most help. Many public officials will eventually con medical benefits for vested incumbents might allow pub- elude that medical benefits for public employees who retire lie employers to achieve even greater long run savings. before attaining Medicare age can be sustained only through 9. Consider Labor Relations. Experienced financial man- employee matching contributions to a defined contribution agers know that benefits plan changes can be disruptive plan or a very modest defined stipend based on a full lifetime in the workforce and cannot be imposed in a vacuum career of public service. I without major repercussions. In states that have strong Notes collective bargaining laws and traditions, these changes I.Girard Miller and Jim Link,"Sustainable Retirement Benefits in the New Normal,"Government Finance Review,August 2009. must be negotiated. Even in right to work states that have 2.A 2010 survey report issued by the Center for State and Local Government greater employer discretion, the morale impact of chang Excellence showed numerous respondents considering or planning to ing benefits must be taken into account. change their OMB plans,although it did not systematically document Employees and their labor representatives must first be actual plan changes or their magnitude. informed of the long-term true-cost trajectory of their cur- 3.Presently,an unfunded OPEB plan without a qualifying trust must use the cash-management investment rate,usually 4 percent or less,for discount- rent benefits plans. If the cumulative costs are unsustain- ing future benefits. able, employees should be made aware of this unavoid- 4.For additional information on the City of Beverly Hills'strategy,e-mail able fact of life and the consequences of inaction. The Scott Miller,finance director,at smiller@beverlyhills.org. actuarial data and graphics discussed above should make that picture clear and undeniable. When confronted with the prospect of a "lost decade" with virtually no salary GIRARD MILLER is a senior strategist at PFM Asset Management, increases and chronic workforce attrition, many public an advisor to the GFOA's Committee on Retirement and Benefrts employees will eventually accept the need for change, Administration, and a frequent contributor to Governing magazine especially if the reforms are phased in incrementally and GFOA publications.He can be reached at millerapfm.com. February 2011 I Government Finance Review 35 CHANG RUTHENBERG & LONGpc EMPLOYEE BENEFITS LAWYERS SEE1 H EBENE FITS . 0 Ok/i May 12, 2011 J Via FedEx Mr. James M. Kelly General Manager j Central Contra Costa Sanitary District 5019 Imhoff Place Martinez, CA 94553-4392 Re: Evaluation Of Current Benefits And Strategies Development Dear Mr. Kelly: As noted in the attached response, we believe that any successful strategy to evaluate and negotiate possible changes to your benefits structure should involve: • A thorough assessment of the District's current and future budget constraints. • Development of realistic actuarial assumptions. • Creation of a working partnership with your employees through education and communication regarding the fiscal challenges facing the District. • A benefits plan design that offers "choice." We look forward to the opportunity of meeting the District's Board of Directors. In the meantime, please feel free to call us should you have any questions. Yours very truly, eenoy Jeffrey C. Chang Kenneth W. Ruthenberg, Jr. jcc @seethebenefits.com kwr @seethebenefits.com "4 Enclosures 200512, • '7) 'j rJ '70 620 Coolidge Drive, Suite 350 1 Folsom, CA 95630-3184 phone. I fax: 91(3 357.5644 a J 4 J 4 a J a a a J J J "4 J a I Response • 4 CHANG RUTHENBERG & LONG Pc EMPLOYEE BENEFITS LAWYERS CENTRAL CONTRA COSTA SANITARY DISTRICT 4 DESIRED OUTCOMES/STRATEGY Ideally, any successful strategy to evaluate and Current/FutureBudget negotiate possible changes to the District's Constraints pension and retiree health benefits must integrate a deliberate and honest assessment by the District and its employees of what a fair and Public Realistic Actuarial j Support Assumptions sustainable package of benefits is in light of: a Current and anticipated budgetary constraints suSTAlNAB1LITY and priorities. a Realistic actuarial assumptions. Remaining competitive in the employment Remaining Employee Competitive market. Buy-In In Employment Market • Employee buy-in. 4 • Public support and acceptance. We note that the District has previously compared 4 itself with certain other special districts and that Based on the need to obtain employee buy-in to any proposed changes, the employee turnover has not been an issue. Because District should plan to adopt an the process of properly benchmarking your compensation and benefits is critical to the overall a approach that first focuses on creating process, we think the District will likely benefit from 4 a partnership with employees, rather using outside consultants to help it understand and than one that merely focuses on identify what the most relevant benchmarks and specific results. comparisons would be in the current economic/political environment. We also encourage the District to pursue attempts to value/monetize all aspects of its employee benefits so that it can better evaluate and negotiate the impact of benefits changes proposed in the future. Based on the need to obtain employee buy-in to any proposed changes, the District should plan to adopt an approach that first focuses on creating a partnership with employees, rather than one that merely focuses on specific results. This is largely an educational and .v communications challenge - to get employer and employees to share a common appreciation of the fiscal challenges facing the District and the extent to which certain employee benefits may no longer be sustainable in their current form. One technique that assures employees a greater sense of involvement and control in any change process is to design benefit options that offer choice. An advantage that Chang, Ruthenberg & Long may have over other counsel is that we do not conduct direct labor negotiations. As a result, our involvement would be more consultative and arguably would give us a more neutral position from which to work. ii CHANG RUTHENBERG & LONG PC EMPLOYEE BENEFITS LAWYERS CENTRAL CONTRA COSTA SANITARY DISTF PENSION REFORM/SUSTAINABILITY STRATEGIES As reflected in the attached articles and our resumes, we have extensive individual and collective experience advising a wide range of public agencies on the best ways to design, operate and modify their various employee benefit plans. As you know, we have endeavored to make public employers aware of their ability to modify and reduce (if necessary) certain pension benefits (see, "Can California Local Government Employers Reduce Benefits Plan Costs: There May Be More Latitude Than You Think..." and "Governmental & Public Agency Retirement Plan Choices: Too Big, Too Small & Just Right?"). We believe that at the appropriate time we can advise the District about the options it has for making various benefit or plan changes, but also the pros and cons of each alternative. We have significant experience dealing with retirement providers/systems such as CaIPERS and PARS and can advise you of the advantages and disadvantages of these alternatives. Along these lines, we have advised several public agencies with respect to their decisions to convert from defined benefit pension plans to defined contribution retirement plans. Here, as with most other discussions involving retirement benefits, the District must demonstrate sensitivity to the potential impact of any changes on both older and younger workers. We have found that the most successful transitions reflect an exhaustive effort to clearly communicate with and educate employees and their bargaining representatives on the impact of the proposed changes and the reality of the situation if changes are not made. Once concerns of the "unknown" have been dispelled, general resistance to change tends to mitigate. HEALTHCARE/SUSTAINABILITY STRATEGIES The ability to reduce or modify the District's retiree health commitments and liabilities will depend in large part on how these benefits were established, how they a The ability to reduce or modify are documented, and what rights the District reserved the District's retiree health to modify them. As described in our recent article in commitments and liabilities will the CSDA magazine, "What's a district to do? depend in large part on how Evaluating Your Various Employee Benefits these benefits were established, Commitments And Whether You Can Modify Them," how they are documented, and there are a number of steps that you can and should what rights the District reserved take to inventory and evaluate your various employee to modify them. benefits. In that article, we mention specific techniques that could result in an immediate reduction in retiree health costs. We also are committed to the education of elected officials and management staff of public agencies and have participated in educational forums regarding the impact of GASB 45 and the options available to public agencies to control their retiree health costs and liabilities. In this regard, you may wish to review the attached outline, "OPEB: You Know the Numbers, Now What?" 2 5 5 5 J 1 J a a 4 4 4 4 a 4 4 4 4 Resumes A 4 ) 3 CHANG RUTHENBERG & LONG PC EMPLOYEE BENEFITS LAWYERS ) ) JEFFREY C . CHANG Jeff and his partners founded Chang, Ruthenberg & EDUCATION Long, the first employee benefits compliance-focused University Of California, Davis School Of law firm in California, over 20 years ago. Since then, Law, J.D., 1979 the governmental practice group has worked on over 60 University Of California, Berkeley, B.A., public employer plans, from small special districts to the Economics, 1976 4 nation's largest park district and 10th largest city, advising on retirement and healthcare plans BAR AFFILIATIONS sustainability and executive compensation. Jeff served Sacramento County, California State, and as co-chair of the American Society of Pension Professionals & Actuaries Government Affairs American Bar Associations Committee. He has spoken widely in the past several years on options for public pension sustainability, including participation in a State of California Little Hoover investigation of the looming crisis, and presentations for organizations such as the League of California Cities, California Special Districts Association, International Public Management Association Northern California, California Association of Sanitation Agencies, and the Association of County Auditors. REPRESENTATIVE MATTERS City Of San Jose The firm has analyzed and advised the City on various income tax aspects of the City's retirement and deferred compensation plans, health plans, payroll practices and employee policies. Reference: Patricia Deignan, Chief Deputy City Attorney, (408) 535-1201, patricia.deignan @sanjoseca.gov Port Of Stockton Chang, Ruthenberg & Long has served as outside benefit counsel for approximately 20 years. We have advised the Port on a wide variety of issues, including the: • Substitution of a defined benefit program in place of a defined contribution plan. • Evaluation of new investment and recordkeeping platforms for the defined contribution plan and the section 457(b) plan. ., • Amendment and restatement of a qualified plan to comply with various law changes. Reference: Christeen Ferree, Human Resources Manager, (209) 946-0246, _7 cferree @stocktonport.com Sacramento Municipal Utility District (SMUD) The firm has advised SMUD on various plans over the past 10 years: ;4 • Helped review and negotiated terms of a comprehensive administrative services and investment contract for the District's participant-directed defined contribution plan. • Oversaw the drafting and submission to the IRS of the District's defined contribution plan. • Provided advice regarding a recommended structure and best practices for the plan's administrative committee. • Oversaw the restatement of its section 457(b) plan. • Were involved in advising the District on a wide variety of plan administrative issues, including hardship distributions, QDROs, and death benefits. Reference: Leslie A. Dunsworth, Assistant General Counsel, (916) 732-6126, Idunswo @smud.org 1 CHANG RUTHENBERG & LONG Pc _ EMPLOYEE BENEFITS LAWYERS City Of Fresno Chang, Ruthenberg & Long advised the City regarding its ability to negotiate an MOU with safety officers that converted unused leave into nontaxable retiree health reimbursement benefits. We evaluated a section 501(c)(9) trust proposal put forth by a bargaining unit and the ability of the City to maintain a health reimbursement arrangement on an unfunded basis. We also advised on the retiree health plan. Reference: Tei Yukimoto, Senior Deputy Attorney, (559) 621-7552, Tei.Yukimoto©fresno.gov Colusa County Our team advised the County: • Regarding its ability to negotiate modifications of its employer contribution toward active employee and retiree healthcare under the PEMHCA. • On the status of its participation in the federal Social Security system. • On the constitutional prohibition against impairment of contract as it related to various employee benefits. • On retention of an actuary to provide GASB 45 valuation and consulting on projected pension costs. Reference: Marge Kemp-Williams, Senior Deputy County Counsel, (530) 458-8227, mkempwilliams©countyofcolusa.org Judicial Council Of California , Administrative Office Of The Courts The Judicial Council is the policymaking body of the California court system, the largest court system in the U.S. Chang, Ruthenberg & Long has worked with the Judicial Council on various issues affecting all the courts, as well as a large number of individual county courts regarding their benefit plans, including Alameda, Butte, El Dorado, Humboldt, Imperial, Kings, Mendocino, Orange, Placer, Riverside, Sacramento, Santa Barbara, Siskiyou, Trinity and Tulare. We have counseled on issues regarding deferred compensation, cafeteria, retiree health, health, and dental plans, as well as issues involving domestic partners, Social Security/Medicare tax, hardship distributions, flexible spending accounts, COBRA, paid time off (PTO), and health care reform. Reference: Steve Crooks, Office Of The General Counsel, (916) 263-7424, steven.crooks @jud.ca.gov South Sutter Water District We have advised the District on the design and management of its retirement plans. In particular, we recently worked with the District's board to analyze the pros and cons of migrating from a defined benefit retirement program to a defined contribution plan. We also have analyzed and recommended ways in which the District can mitigate its unfunded pension liabilities. Reference: Bradley Arnold, General Manager, (530) 656-2242, sswd©syix.com 2 CHANG RUTHENBERG & LONG PC EMPLOYEE BENEFITS LAWYERS KENNETH W. RUTHENBERG , JR . EDUCATION Ken has practiced exclusively in employee benefits Golden Gate University Law School law since 1979, covering government, qualified LL.M. (Tax), 1985. Graduated first in retirement, nonqualified deferred compensation, and class welfare benefit plans. His practice includes local and State governments, as well as highly complex private University Of California Hastings College industry employee groups involving numerous Of The Law, J.D., 1974. Top 25 /o of interlocking entities, with tens of thousands of graduating class employees. Most recently, he has addressed University Of Kansas School Of Business, employee benefits issues in presentations for B.S. Business Administration, 1969. organizations such as the League of California Cities, Business School Dean's Honor Roll International Public Management Association BAR AFFILIATIONS Northern California Chapter, and the Association of County Auditors. Ken is a fellow in the American California State and American Bar College Of Employee Benefits Counsel, and was Associations selected by his peers for inclusion in the publication "Super Lawyers"® and "Best Lawyers In America"®. REPRESENTATIVE MATTERS City Of East Palo Alto We have advised the City regarding a Code section 401(k) plan that the City adopted prior to the time when governmental employers were banned from adopting such plans. Reference: Stephanie Osaze, Finance Director, (650) 853-319, sosaze @cityofepa.org City Of San Jose The firm has analyzed and advised the City on various income tax aspects of the City's retirement and deferred compensation plans, health plans, payroll practices and employee policies. Reference: Patricia Deignan, Chief Deputy City Attorney, (408) 535-1201, J patricia.deignan @sanjoseca.gov Judicial Council Of California , Administrative Office Of The Courts The Judicial Council is the policymaking body of the California court system, the largest court :4 system in the U.S. Chang, Ruthenberg & Long has worked with the Judicial Council on various issues affecting all the courts, as well as a large number of individual county courts regarding their benefit plans, including Alameda, Butte, El Dorado, Humboldt, Imperial, Kings, Medocino, Orange, Placer, Riverside, Sacramento, Santa Barbara, Siskiyou, Trinity and Tulare. We have counseled on issues regarding deferred compensation, cafeteria, retiree health, health, and dental plans, as well as issues involving domestic partners, Social Security/Medicare tax, hardship distributions, flexible spending accounts, COBRA, paid time off (PTO), and health care reform. Reference: Steve Crooks, Office Of The General Counsel, (916) 263-7424, steven.crooks @jud.ca.gov .:4 1. CHANG RUTHENBERG & LONG PC EMPLOYEE BENEFITS LAWYERS City Of Fresno Chang, Ruthenberg & Long advised the City regarding its ability to negotiate an MOU with safety officers that converted unused leave into nontaxable retiree health reimbursement benefits. We evaluated a section 501(c)(9) trust proposal put forth by a bargaining unit and the ability of the City to maintain a health reimbursement arrangement on an unfunded basis. We also advised on the retiree health plan. Reference: Tei Yukimoto, Senior Deputy Attorney, (559) 621-7552, Tei.Yukimoto @fresno.gov Colusa County Our team advised the County: • Regarding its ability to negotiate modifications of its employer contribution toward active employee and retiree healthcare under the PEMHCA. • On the status of its participation in the federal Social Security system. • On the constitutional prohibition against impairment of contract as it related to various employee benefits. • On retention of an actuary to provide GASB 45 valuation and consulting on projected pension costs. Reference: Marge Kemp-Williams, Senior Deputy County Counsel, (530) 458-8227, mkempwilliams @countyofcolusa.org Port Of Stockton Chang, Ruthenberg & Long has served as outside benefit counsel for approximately 20 years. We have advised the Port on a wide variety of issues, including the: • Substitution of a defined benefit program in place of a defined contribution plan. • Evaluation of new investment and recordkeeping platforms for the defined contribution plan and the section 457(b) plan. • Amendment and restatement of a qualified plan to comply with various law changes. Reference: Christeen Ferree, Human Resources Manager, (209) 946-0246, cferree @stocktonport.corn Association Of Bay Area Governments The firm evaluated 401(a) and 457(b) plans and advised with respect to investment agreements and service contracts. Reference: Clarke Howatt, Financial Services Manager, (510) 464-7932, clarkeh @abag.ca.gov California Earthquake Authority We have advised the client regarding the tax and compliance aspects of a qualified plan of deferred compensation (a "profit sharing" plan) under Code section 401(a) and a nonqualified plan of deferred compensation under Code section 457(b) and the related trust. Reference: Daniel P. Marshall, III, General Counsel, (916) 325-3800, Daniel.Marshall@calquake.com California Avocado Commission The firm advised the Commission regarding various retirement plan issues, including executive deferred compensation and fiduciary responsibilities. Reference: Valetta Weaver, Vice President, Finance/Administration, (949) 341-1955 x 115, vweaver @avocado.org 7 3 CHANG RUTHENBERG & LONG Pc EMPLOYEE BENEFITS LAWYERS ti SUSAN B . NEETHLING EDUCATION Susan's practice includes qualified retirement plans, University Of Stellenbosch, South governmental benefit plans, nonqualified deferred Africa, LLB, 1977; B.A., 1975 compensation plans, and all aspects of employee benefits law. She offers particular expertise in drafting and advising on BAR AFFILIATIONS 457(b), governmental, defined contribution, defined benefit California State Bar Association and 403(b) plans for schools and not-for-profit organizations. REPRESENTATIVE MATTERS 41 South Sutter Water District We recently worked with the District's board to analyze the pros and cons of migrating from a defined benefit retirement program to a defined contribution plan. We also have analyzed and recommended ways in which the District can mitigate its unfunded pension liabilities. Reference: Bradley Arnold, General Manager, (530) 656-2242, sswd @syix.com City Of San Jose The firm has analyzed and advised on various income tax aspects of the City's retirement and deferred compensation plans, health plans, payroll practices and employee policies. Reference: Patricia Deignan, Chief Deputy City Attorney, (408) 535-1201, patricia.deignan @sanjoseca.gov Sacramento Municipal Utility District (SMUD) The firm has advised SMUD on various plans over the past 10 years: • Helped review and negotiated terms of a comprehensive administrative services and investment contract for the District's participant-directed defined contribution plan. • Oversaw the drafting and submission to the IRS of the District's defined contribution plan. • Advised on structure and best practices for the plan's administrative committee. • Oversaw the restatement of its section 457(b) plan. • Advised the District on a wide variety of plan administrative issues, including hardship = distributions, QDROs, and death benefits. Reference: Leslie A. Dunsworth, Asst. General Counsel, (916) 732-6126, Idunswo @smud.org Colusa County Our team advised the County: • Regarding its ability to negotiate modifications of its employer contribution toward active employee and retiree healthcare under the PEMHCA. • On the status of its participation in the federal Social Security System. Reference: Marge Kemp-Williams, Senior Deputy County Counsel, (530) 458-8227, J mkempwilliams @countyofcolusa.org Port Of Stockton We have advised the Port on a wide variety of issues over the past 20 years, including the amendment and restatement of a qualified plan to comply with various law changes. Reference: Christeen Ferree, HR Manager, (209) 946-0246, cferree @stocktonport.com 1 CHANG RUTHENBERG & LONG Pc EMPLOYEE BENEFITS LAWYERS SCOTT E . GALBREATH EDUCATION Scott's employee benefits and executive IIT Chicago-Kent College of Law 4 compensation practice includes: counseling clients on LL.M. (Tax) with Honors, 1991; choosing appropriate retirement, deferred J.D., 1986 4 compensation, and other benefit plans; ERISA and Internal Revenue Code compliance, investments, Elmhurst College prohibited transactions, and fiduciary duties; as well B.A. with High Honors, Political Science as drafting plan documents and correcting plans. He and Urban Studies, 1983 has particular expertise with the new rules for BAR AFFILIATIONS deferred compensation under Internal Revenue Code section 409A. Scott was recognized as an Illinois California State Bar Association Leading Lawyer in Employee Be'nefits by Leading Lawyer Network. REPRESENTATIVE MATTERS City Of San Jose The firm has analyzed and advised the City on various income tax aspects of the City's retirement and deferred compensation plans, health plans, payroll practices and employee policies. Reference: Patricia Deignan, Chief Deputy City Attorney, (408) 535-1201, 4 patricia.deignan©sanjoseca.gov City Of Fresno 4 Chang, Ruthenberg & Long advised the City regarding its ability to negotiate an MOU with safety officers that converted unused leave into nontaxable retiree health reimbursement benefits. We evaluated a section 501(c)(9) trust proposal put forth by a bargaining unit and the ability of the City to maintain a health reimbursement arrangement on an unfunded basis. We also advised on the retiree health plan. Reference: Tei Yukimoto, Senior Deputy Attorney, (559) 621-7552, Tei.Yukimoto©fresno.gov Colusa County Our team advised the County: • Regarding its ability to negotiate modifications of its employer contribution toward active employee and retiree healthcare under the PEMHCA. • On the status of its participation in the federal Social Security System. • On the constitutional prohibition against impairment of contract as it related to various employee benefits. • On retention of an actuary to provide GASB 45 valuation and consulting on projected pension costs. Reference: Marge Kemp-Williams, Senior Deputy County Counsel, (530) 458-822, mkempwilliams @countyofcolusa.org :) 1 D a 4 9 4 4 4 9 9 8 a a 1 a a 0 a a Articles a CHANG RUTHENBERG & LONG PC EMPLOYEE BENEFITS LAWYERS Can California Local Government Employers Reduce Benefits Plan Costs? There's More Latitude Than You Think... Jeffrey C. Chang, Esq. The boom days of the millennium decade's early years are over, but the now unsustainable benefits packages negotiated by California state and local governments and their employees remain - some representing as much as 40 percent of overall budget costs. Our discussions with local government managers and their advisors suggest a tremendous amount of confusion and misinformation about their ability to align employee benefits costs with their fiscal realities. This article discusses one source of much of the confusion - interpretations by California courts of the Constitutional prohibition against impairment of contracts - and why local governments have more latitude than they think. THE PROBLEM AND THE OBSTACLES PERCEIVED I Much of the confusion over the rights of public employees to retirement benefits stems from the way California courts have described these rights. In San Bernardino Public Employees Association v. City of Fontana, the Court of Appeal quoted Kern v. City of Long Beach: "[w]hile payment of these benefits is deferred, and is subject to the condition that the employee continue to serve for the period required by the statute, the mere fact that performance is in whole or in part dependent upon certain contingencies does not prevent a contract from arising, and the employing governmental body may not deny or impair the contingent liability any more than it can refuse to make the salary payments which are immediately due." The common understanding of this language is that a governmental body cannot modify or reduce a promised pension or retirement benefit without running afoul of the Constitutional prohibition against impairment of contracts. However, we believe that local governments actually have considerably more latitude to change retirement benefits. For the uninitiated, the principal constraint upon California governmental agencies against making changes to pension and retiree medical benefits stems from language in both the U.S Constitution and the California State Constitution that generally prohibits California from impairing any contract it has entered into. A number of public employee organizations and individual public employees have aggressively, and understandably so, litigated the impairment issue so as to create a general impression that pension and post-employment benefits of practically every sort cannot be changed, reduced or eliminated. In a number of important cases, such as Kern, the facts of the case practically cried out for a resolution in favor of the employee. However, a close reading of the pertinent cases suggests that a public employee's a right to a pension benefit is not inviolate, but may be changed or even eliminated under appropriate circumstances. LESSONS FROM THE KERN CASE Kern is one of the leading and most oft-cited cases. Let's take a closer look at the background of the case and what the court said. Kern was a 1947 California Supreme Court decision and involved an action by a retiring firefighter (Kern) against the City of Long Beach. In essence, the City rejected Kern's application for retirement benefits following his attainment of eligibility for retirement benefits on the grounds that the pension benefits pertaining to his years of service for the City and set 1 CHANG RUTHENBERG & LONG ac EMPLOYEE BENEFITS LAWYERS forth in the City's charter had been eliminated by charter amendment some 32 days before he completed the required 20 years of service. The question before the California Supreme Court was "whether petitioner acquired a vested right to a pension which the City could not abrogate by repealing the charter provisions without impairing its obligation of contract." You may be familiar with the legal adage "bad facts make for bad law" and these were not very good facts for the City. In concluding that Kern had a vested pension right and that the City, by completely repealing all pension provisions, had attempted to impair its contractual obligations, the court found: • In California, pensions for public employees are more than a mere gratuity. • Pension rights acquired by public employees under statutes similar to the Long Beach Charter become vested as to each employee at least on the happening of the contingency upon which the pension becomes payable. • An employee has actually earned some pension rights as soon as he has performed substantial services for his employer. • The payment of pension benefits, while contingent upon the performance of services required to earn the benefits, could not be rejected once all contingencies were satisfied. • A city cannot deny or impair the contingent liability (to provide a pension) after the contractual duty to make salary payments has arisen. Despite the various pro-employee determinations that can be found in Kern, there are several important pro-employer aspects of the case as well: • Kern involved an attempt by a city to deprive an employee of all benefits under a pension program. • The court recognized that "the rule permitting modifications of pensions is a necessary one since pension systems must be kept flexible to permit adjustments in accord with changing conditions and at the same time maintain the integrity of the system and carry out its beneficent policy." • Overall, an employee may acquire a vested contractual right to a pension but that right is not rigidly fixed by the terms of the legislation (i.e., charter) at any particular time. Instead, it is subject to the implied qualification that the governing body may make modifications and changes in the system. • The employee does not have a right to any fixed or definite benefits, but only to a substantial or reasonable pension. • There is nothing inconsistent about conferring a vested right to a pension, but at the same time holding that the amount, terms and conditions of the benefits may be altered. Taken as a whole, we do not believe that Kern stands for the proposition that pension benefits become vested upon commencement of employment and cannot be changed or reduced. Rather, we believe that Kern should be read for the following more moderate propositions: • Upon commencement of employment, a public employee may, according to the terms of a local government charter, ordinance or plan, earn a vested right to participate in a retirement plan. This includes an expectation of receiving a substantial or reasonable pension in accordance with the terms of the program. • Although a public employee may have a right to participate in a public pension program, the governing body has the right to make modifications and changes to the system - particularly if the changes are necessary to address changing conditions facing the agency (such as a 2 CHANG RUTHENBERG & LONG Pc EMPLOYEE BENEFITS LAWYERS budget crisis) and the changes do not deprive employees of pension or retirement benefits to the extent they have been "earned" under the system. THE PROGENY OF KERN Of course the law in this area has not remained static. In a few instances, language has crept into judicial decisions suggesting further restrictions on the ability of government to make pension benefit changes. For example, the post-Kern cases of Allen v. City of Long Beach, Wallace v. City of Fresno and Packer v. Board of Retirement introduce the notion that any pension change that disadvantages employees should be accompanied by a comparable new advantage. At first blush, it is easy to think that the "comparable new advantage" language would effectively preclude any "real" pension system changes with significant cost savings. Not so. We believe the intent of the courts in these cases was to prevent local governments from completely taking away already accrued benefits without providing comparable benefits in exchange. We do not think these court decisions would prevent a local government from reducing or modifying pension benefits to the extent they have not yet been earned. LESSONS FROM OTHER DECISIONS Because the purpose of this article is to make California governmental employers aware of their options to modify or reduce pension and other post-employment benefits, we have summarized below a number of cost-saving actions that local government employers may wish to consider: .� • California's courts have found on several occasions that there is no prohibited impairment where the terms of the legislation (or plan) providing for the benefit expressly reserves the right to modify or reduce such benefits. Furthermore, the decision from Walsh v. Board of Administration clearly implies that there was nothing wrong with the subsequent addition of a reservation of rights to a pension scheme for legislators. Therefore, it is critically important for local government employers to review the various charter, ordinance and administrative code sections authorizing their plans to make sure that they have expressly reserved the right to modify and change benefits. • Most city-provided pension and post-retirement benefits are directly or indirectly the subject of collective bargaining in accordance with the Meyers-Milias-Brown Act (California Government Code Section 3500 et seq.). Although there is surprisingly little case law on the subject, it appears that benefits that are properly the subject of the collective bargaining can be bargained away in exchange for other consideration. (See, e.g., California League of City Employee Associations v. Palos Verdes Library Dist. and San Bernardino Public Employees Association v. City of Fontana). • Because it is well settled that public employees have no vested right in any particular :4 measure of compensation or benefits (that is pay and pay-related benefits), and that these may be modified or reduced by proper statutory authority, governments should be able to reduce items of compensation, including the employer's payment for the following types of costs: :.� • The employee's share of a contribution to a Social Security replacement plan (i.e., a "retirement system"); • An annual cafeteria plan benefit, or flexible spending account benefit; and • The employee's mandatory contribution to a pension plan, such as CaIPERS. .J 3 f i CHANG RUTHENBERG & LONG PC EMPLOYEE BENEFITS LAWYERS • In California Association Of Professional Scientists v. Schwarzenegger, the Court of Appeal determined that "future employees do not have a vested right in any particular pension plan" (citing Claypool v. Wilson) and that it generally would not interpret a collective bargaining agreement to prohibit changes in pension benefits as to new employees. Therefore, so long as the government employer's pension system can accommodate multiple classifications or tiers of benefits, the employer should be able to control future benefit costs by placing new hires in a less expensive benefit structure. One of the more significant public relations problems that governmental pension systems have is the adverse publicity associated with pension and benefits "spiking" (e.g., increasing final compensation upon which a pension is based by getting paid for unused vacation time). There are ways to design and administer plans to avoid and discourage pension spiking, including abandoning plan formulas and compensation definitions that make it possible in the first place. HOPE FOR THE BEST BUT PLAN FOR THE WORST In an ideal world, a local government would be able to discuss with its employees and their bargaining representatives the critical and real need to reduce various compensation and benefit costs, and reach some reasonable compromise through the collective bargaining process. Fortunately, there are now a number of judicial precedents for making reductions in the terms and conditions of employment even when the reductions cannot be agreed upon as part of the collective bargaining process (see San Bernardino Public Employees Association and San Diego Police Officers'Association). This should be a back-up option in the event a government employer is unable to negotiate sufficient concessions directly. Along these lines, it would make sense to include language in any new MOUs, if possible, that clarify that such benefits last only as long as the MOU and that any pension or benefits commitments in the MOU do not necessarily prevent the employer from making changes that would apply to new hires. Editor's Note: We did the best we could to make sure the information and advice in this article were current as of the date of posting to the web site. Because the laws and the government's rules are changing all the time, you should check with us if you are unsure whether this material is still current. Of course, none of our articles are meant to serve as specific legal advice to you. If you would like that, please call us at (916) 357-5660 or email us at contactus @seethebenefits.com. 4 r• CHANG RUTHENBERG & LONG Pc EMPLOYEE BENEFITS LAWYERS Governmental & Public Agency Retirement Plan Choices: Too Big, Too Small & Just Right? 4 Jeffrey C. Chang, Esq. If you are a California governmental employer, you may have more alternatives than you realize for providing significant and cost-effective retirement benefits to your employees. Many California public agencies incorrectly assume that they must participate in the behemoth California Public Employees' Retirement System (CaIPERS) if they wish to provide quality retirement or health benefits to their employees. This article explains some of the options, other than CaIPERS, that are available to public agencies and the reasons for considering these options. These alternatives generally apply to "smaller" governmental agencies, such as municipalities, utility districts, state commissions and water districts that are not required by federal or state ' statute to participate in the state retirement system. In California, all public safety personnel and university employees must participate in CaIPERS. In some cases, due to collective bargaining agreements or statutory mandates, large groups of employees are required to receive their retirement benefits through a statutorily mandated retirement system such as the California State Teachers' Retirement System (CaISTRS). Since there are many state and local governmental employers whose employees are not required to be covered by the state-sponsored retirement system where they are located, these employers have the opportunity to evaluate and determine whether they and their employees would be better off by not joining the state-sponsored retirement system and instead adopting their own plan. In 4 California, a public employer that is not required to participate in CaIPERS can elect to become a "contracting agency" and participate in CaIPERS by entering into a contract with the CaIPERS Board of Administration "to have all or any part of its employees become members of this system." As "local miscellaneous members," such employees will become entitled to benefits under the CaIPERS retirement system in accordance with the resolutions that the agency's governing board adopts stating which benefit formula and design options (all of which are limited by state law) are being chosen. For example, one of the available formulas is 2.0% of each covered employee's compensation multiplied by the employee's years of service for the state, or one of its agencies or subdivisions, with normal retirement at age 60. 4 THE COST OF THE "TOO BIG"? CaIPERS and most other state retirement systems are designed as defined benefit pension plans, under which the members are paid a specified benefit upon retirement or certain other events, normally based upon their years of covered employment and their annual compensation during their last few years of employment. Under such plans, the employer and/or retirement system assumes the risk that there will be sufficient assets available to pay the promised benefits when the employee retires. Because it is the employer that assumes the "risk of investment" under a ..4 defined benefit plan, many city and county governments were asked by CaIPERS to significantly increase their rates of contribution to make up for the poor investment results of the post-dotcom recession. Furthermore, if the dramatic losses of 2008 - 2009 do not reverse themselves immediately, it is anticipated that CaIPERS will significantly increase employer contribution rates beginning in the 2010 - 2011 plan year. One significant problem for employers that maintain defined benefit pension plans is that the cost of funding such plans typically increases during times of economic downturn - exactly when the employer can least afford to raise the funding of its plan. As part of its recent attempt to solve California's dramatic budget deficit, the California legislature tried to resort to the issuance of 4 1 10 CHANG RUTHENBERG & LONG PC EMPLOYEE BENEFITS LAWYERS pension bonds (that is, borrowing approximately $2 billion to help pay for a current pension funding shortfall). THE RISK OF THE "TOO SMALL?" In an effort to avoid some of the fiscal uncertainties of defined benefit pension plans, many public employers have adopted defined contribution plans, under which the covered employees' benefits are not specified or promised. Instead, these plans allow their employees to take advantage of strong returns in the equity markets. The employees' benefits at retirement or termination of employment consist of whatever contributions the employer has made to the plan plus the net earnings that those contributions have generated. Perhaps the most popular defined contribution plan that public employers use is a money purchase pension plan, under which the employer is required to contribute a certain percentage of each covered employee's annual compensation, say 10%, to the plan, and each member's ultimate plan benefit is determined solely by the amount of these contributions and the net earnings that they generate over the employee's period of service with that employer. Although defined contribution plans enjoyed significant investment gains during much of the 1990s, many of them also suffered significant losses during the 2008 - 2009 melt down. In many cases, the employees' investment return during 2008 was between -25% and -30%. And as many of those employees near retirement age with the highest rate of compensation of their careers and many years of service, they and their employers are faced with the very real possibility that their retirement plan will not provide sufficient funds to sustain them during their retirement years. This is particularly true where the employee has not been participating in the defined contribution plan for a significant number of years (e.g., 25 or more). This problem is exacerbated by the fact that, as state or local employees, they may be entitled to little or no federal Social Security benefits. Thus, just as quickly as such employers abandoned state retirement systems during the good years, they are now looking for ways to make up for the losses suffered during the recent bad years. Of course, with talk of the possibility of a large and sustained bull market in the future, when and if we turn the corner, some employers and younger employees relish the idea of a defined contribution plan. IS THERE A "JUST RIGHT? " From time to time, these public employers consider whether it makes sense to join (or in some cases, rejoin) their state retirement system. By so doing, they hope to transfer the risk of poor investment results from the employee (under the defined contribution/ money purchase pension plan approach) to the employer (under its defined benefit style retirement system). More importantly, they hope to utilize a defined benefit pension formula to significantly boost the retirement benefits of employees with many years of service but relatively small retirement benefits. In California, for instance, such transfers are permitted provided that the covered employees voluntarily elect to transfer all plan assets to CaIPERS, and the public employer agrees to make the required contributions. In most cases, employee contributions are also required. However, the cost of transition in required contributions can be prohibitively expensive for the employer since generally it will have to provide the funds not only for the employees' future years of service, but also for each employee's past years of service that have been inadequately funded. This may be due to the transferred assets having been significantly reduced during the recent economic downturn. This "past service liability," which can amount to hundreds of thousands or even millions of dollars even for relatively small employers, must be "amortized" by increased future employer contributions. Since state retirement systems such as CaIPERS require this past service liability to 2 7 r CHANG RUTHENBERG & LONG PC EMPLOYEE BENEFITS LAWYERS be amortized over a relatively short period of time after the transition, the employer's contribution obligation can be increased to prohibitive levels. CASE STUDY Consider, for example, a small utility district with eight employees and under $500,000 in its money purchase pension plan. The district has considered becoming a contracting agency under CaIPERS because its plan had not accumulated sufficient assets to provide an adequate retirement j income for 3 very long-term employees who were nearing retirement age. However, when the CaIPERS actuary calculated the amount of the required contributions, even after all of the existing plan assets were transferred to CaIPERS, the 10% annual employer and 0% annual employee 4) contributions that the district and its employees had been making would be insufficient. The CaIPERS cost for benefits would balloon to a 41.4% annual employer and a 7% annual nondeductible employee contribution. In addition, the employer would be limited in its choice among only five permitted benefit formulas and almost no flexibility in such areas as determination of compensation, eligibility requirements, vesting of benefits, etc. J Because of the prohibitive cost and inflexibility of the CaIPERS program, a pension actuary designed a defined benefit pension plan for the district that met the district's cost objectives. The district could afford a 20% annual employer contribution and a 0% annual employee contribution. J At the same time it could provide the same benefits that the covered employees would have received under CaIPERS! Coincidently, the district's plan would be exempt from the requirements of the Employee J Retirement Income Security Act of 1974 (ERISA). This would ensure the plan's tax qualification without complying with many of the Internal Revenue Code's requirements that do not apply to governmental plans and which complicate and burden private sector employer plans. Since most of the tax-qualification prohibitions against discrimination in coverage and benefits do not apply to J governmental plans, a customized plan is an ideal vehicle for providing special treatment in terms of immediate eligibility, accelerated vesting, increased contribution levels, increased benefit levels, etc., to targeted employees or groups of employees. • OTHER "JUST RIGHT" STRATEGIES Another reason that public agencies should consider adopting a qualified retirement plan, either instead of CaIPERS or in addition to CaIPERS, is the fact that these plans can be useful in providing 4) supplemental retirement benefits to a group of key employees. In many cases, a supplemental executive retirement program for certain key employees of a public agency can also be a qualified retirement plan. In contrast, private sector employers must set these up as nonqualified deferred • compensation plans. When possible, the agency should use a qualified plan for this purpose since it provides more favorable tax treatment than a nonqualified plan. 4 WHAT TO DO? i Any California governmental employer that has the right to choose between the state's retirement ✓ system and its own properly-designed plan will, in many instances, come out ahead in terms of cost and flexibility by choosing to adopt its own plan. Thus, if you are currently participating in a • state-sponsored retirement system, you need to ask yourself whether you are getting just the right 4 size benefits, for the right cost, from your current retirement plan design and administration. If you are unsure about the answer to this question, you may contact us. Editor's Note: We did the best we could to make sure the information and advice in this article were current as of the date of posting to the web site. Because the laws and the government's rules are changing all the time,you should check with us if you are unsure whether this 4 material is still current. Of course, none of our articles are meant to serve as specific legal advice to you. If you would like that, please call us at(916)357-5660 or email us at contactus @seethebenefits.com. 4 3 MOCHANG RUTHENBERG & LONG pc EMPLOYEE BENEFITS LAWYERS What's A District To Do? Evaluating Your Various Employee Benefits Commitments And Whether You Can Modify Them 4 Jeffrey C. Chang As the fallout from several years of budget crises continues to filter down and through state government, local government and special districts, elected boards and district managers are 4 left only with the hard choices - cut jobs, essential services, or valuable benefits. Assuming that less critical services and employees who could reasonably be cut were addressed years ago, we are talking about the elimination of mission-critical employees or some of the benefit 4 costs associated with current employees or retirees. In addition, many districts are coming to the difficult realization that they cannot, in the long run, afford the levels of CaIPERS retirement benefits to which they, along with many other public employers, have seemingly agreed. 4 District management cannot adequately deal with this situation unless it understands all of its 4 options. If you are laboring under the impression that your district simply cannot make (or J cannot negotiate) changes in various employee benefit programs because all public employees' benefits are constitutionally protected, think again. Yes, there is a significant body of 4 California case law that protects the rights and expectations of public employees with respect to their participation in pension programs and similar benefits. However, the law is not as i broad as many assume and there are a number of options - strategies and techniques - that public agencies, particularly financially strapped districts, should consider as they struggle to • survive in these difficult times. • STEP ONE : INVENTORY YOUR COMMITMENTS The first step in evaluating your options is to perform a thorough inventory of your various 4 benefit commitments and the basis for each such commitment. This consists of identifying all your retirement, welfare and fringe benefits, and gathering the relevant plan documents, authorizing resolutions, amendments, collective bargaining agreements, and plan summaries, as well as any other descriptions that are provided to employees. Typically we find that as a result of this fundamental process, many of our clients discover that 4 they currently are providing levels of benefits (such as employer contributions towards health • insurance) that are far greater than what they are legally obligated to provide. There are a ♦ number of helpful judicial decisions that limit a public agency's benefit commitments to the levels of benefits that have been expressly authorized by the agency's governing body - not • the levels of benefits that it may have provided in the past or is currently providing. • Of course, a significant number of CSDA's members participate in the CaIPERS retirement and •• health insurance programs. Although these programs often are less flexible than stand-alone benefits programs, many districts fail to fully investigate their options for modifying their benefits just because it's CaIPERS with which they are dealing. • STEP TWO : EVALUATE YOUR OPPORTUNITIES • The second step is to evaluate these commitments with employee benefits consultants or legal advisers who appreciate not only what the law is, but where it is going. Currently, there are several important cases on appeal, and several new benefits strategies being utilized, that are 4 likely to be relevant to what your district may want to do. J 1 CHANG RUTHENBERG & LONG Pc EMPLOYEE BENEFITS LAWYERS Unless your advisers are familiar with these evolving issues, you may miss out on opportunities of which other districts are taking advantage. For example, if your district participates in the CaIPERS health insurance program, you are familiar with the "equal contribution rule" that generally requires the same employer contribution towards health insurance be made for annuitants as is made for employees. Many districts have lowered their equal contribution amount to the statutory minimum (currently $105 per month) while at the same time implementing a cafeteria plan to provide an offsetting health insurance benefit for active employees. Many other districts have refrained from lowering their employer contribution rate over concerns of how it will affect current or future retirees. There now may be ways to lower the required contribution amount, fully or partially subsidize employees through a cafeteria plan, and at the same time provide offsetting benefits to various groups of retirees or near-retirees. STEP THREE : EDUCATE YOUR STAKEHOLDERS If your benefits must be negotiated with one or more bargaining units, it is essential for your managers, your bargaining team and your governing board to be on the same page with regard to short- and long-term negotiating objectives and strategies. More importantly, districts and their collective bargaining teams have to allow for more time and contact with bargaining partners to make sure that union representatives and members understand the critical nature of your district's finances and that the choices really may have come down to trimming benefit costs or trimming positions. As unions and their bargaining representatives become more in tune with the district's fiscal realities, you are likely to see much more cooperation and creativity when it comes to making short-term and long-term benefits changes in order to achieve a sustainable level of benefits. For example, one of our district clients recently was able to agree with its principal union upon a sustainable level of annual contribution that the district could afford. The union and the district agreed that, to the extent the required annual contribution for pension benefits exceeded this level, the union's members would automatically reduce their salaries to pay the excess amount. In the event that the annual required contribution drops below the agreed upon level, union members will receive an automatic salary increase equal to the difference. Along the same lines, we have previously written about the ability of public agencies and their union employees to "convert" accumulated vacation or PTO into non-taxable post-retirement health benefits. STEP FOUR : KEEP AN OPEN MIND Of course, during this process of education and collaboration, the parties may come to realize that the continued provision of existing pension benefits and retiree health benefits is simply not something that can be sustained over the long haul. If the parties get to that point, it should be possible to discuss and analyze the pros and cons of more drastic, long-term changes. We have seen a number of public agencies begin the process of evaluating the potential short-term and long-term impacts of leaving the CaIPERS health program, the CaIPERS retirement system, or both. Although it may seem somewhat costly for an agency to make installment payments to CaIPERS (to cover its unfunded liability) while at the same time trying to provide a current new plan benefit to its employees, once the CaIPERS obligation has been liquidated, the agency will have dramatically more flexibility and freedom to fashion ongoing benefits programs that it can afford regardless of future budgetary crises. For many districts, the ultimate decision will be to stick it out as part of the CaIPERS system. However, for a number of districts the correct 2 CHANG RUTHENBERG & LONG Pc _ S EMPLOYEE BENEFITS LAWYERS J decision will be to obtain greater control over the structure and costs of their benefits programs by leaving the "one-size-fits-all" approach for which CaIPERS is famous. d This article was originally published in "California Special District," Volume 5, Issue 5, September- October 2010. It was reprinted with permission from the California Special Districts Association. Editor's Note:We did the best we could to make sure the information and advice in this article were current as of the date of posting to the web site.Because the laws and the government's rules are changing all the time,you should check with us if you are unsure whether this material is still current.Of course,none of our articles are meant to serve as specific legal advice to you. If you would like that,please call us at(916)357-5660 or email us at contactus@seethebenefits.com. • • • • 4 J J 4 'S 4 • • • I • • • • • • • • •r 3 OPEB: You Know the Numbers, Now What? Presentation to the PFM Asset Management LLC Investment and Financial Management Forums Fresno, California March 15, 2011 Sacramento, California March 16, 2011 Jeffrey C. Chang, Esq. JCC@seethebenefits.com OkiCHANG RUTHENBERG & LONG PC EMPLOYEE BENEFITS LAWYERS Introduction a. The GASB 45 reports are coming in. Now what? b. The fine print is confusing. What do you really owe? c. You understand that you need an OPEB strategy. How do you get started? II. The GASB 45 reports are coming in. Now what? Public agencies that prepare financial reports in accordance with generally accepted accounting principles (GAAP), as promulgated by the Government Accounting Standards Board (GASB), have received actuarial reports setting forth the extent of their liabilities for other post employment benefits (OPEB) in accordance with GASB Statement No. 45 (GASB 45). At one level, you can tell yourself that if your agency's financial statements properly include the information called for by GASB 45 you are in compliance. However, like so many things in life, the identification of your unfunded actuarial accrued liability (UAAL) is just the beginning of a much more involved process — one that you should not delay any longer. Let's look at this in another way. Imagine a busy, growing, financially sound family that has kept a 10,000-foot-level view of its finances. Over the years they have been issued a number of credit cards, which they have used to charge various expenses. They haven't kept strict track of the total amount that they owe on the cards. All that they know is that each of the cards requires a minimum monthly payment of at least $50.00 and they remit that amount on a regular basis. Does this situation sound at least a little bit familiar? If so, it might be because it is so closely analogous to the OPEB costs and liabilities that many public employers are facing. GASB 45 is forcing public employers to acknowledge and report the total amount of their "credit card debt," not just the minimum monthly payments (aka, the pay-as-you-go amounts) they have been making. In addition, it requires you to acknowledge the true cost of paying off not only the monthly minimum amount but also the accumulated debt we previously were ignoring. The cost of paying for current monthly minimum, as well as gradually paying off our already accumulated debt, is equivalent to the annual required contribution (ARC) in GASB parlance. Once again, the question being put to all of your agencies is: "Now that you know the total of the debt you're facing and that it is going to cost significantly more than the current economic reality may permit, what are you going to do about the situation?" If we look back to the credit card analogy, can the overall liability be controlled by shredding some or all of the cards and/or refinancing higher interest debt to lower interest debt? Or can you adopt a plan or strategy that enables you to begin the process of paying down the debt? It depends. Before you can do anything to effectively control costs and liability you need to get a handle on nature and scope of the OPEB commitment. III. The fine print is confusing. What do you really owe? The answer to this question may be more complicated than you think. What I am referring to is not the value of your OPEB liabilities, but the legal basis for your OPEB liabilities. We have found numerous California public agencies that have "assumed" they are saddled with significant amounts of OPEB liability without having analyzed the legal nature of the liability — particularly whether these assumed levels of liability can be modified or curtailed. Take for example the situation facing many public agencies that provide health benefits to their employees and retirees in conjunction with CaIPERS and in accordance with the Public Employees' Medical and Hospital Care Act (PEMHCA). Most of you who provide health benefits in this manner know that the so-called "equal contribution rule" generally requires that the portion of the employer's payment toward health care coverage be the same for active employees and annuitants. What many of you may not realize is that the commitment contained in your MOUs to make the same level of employer contributions toward retirees' health coverage as is made for active employees may be the full extent of your agency's retiree heath or OPEB commitment. We have seen this situation enough to know that it is fairly typical. What it means is that your agency could conceivably reduce its obligation to contribute towards the health insurance coverage of its retirees simply by reducing the amount it directly contributes for its employees. How is this done? One approach being taken by a number of local governments is to reduce the level of employer's equal contribution toward health coverage to a much lower level — perhaps as low as the PEMHCA minimum of $108 per month. Then the agency can adjust its subsidy of employees' and retirees' health coverage costs independently of one another by establishing one or more Health Expense Reimbursement Arrangements (HRA) or cafeteria plans (also known as 125 plans). In general, this change would have to be bargained for. However, your bargaining partners may be more amenable to changes of this sort that have a lesser or minimal impact on active employees. For those of you who are in CaIPERS health, I've attached a few items to my outline, pulled from the web, that suggest that a considerable number of local governments and agencies are moving forward on this front. Here is another fairly common situation. A public agency that was not providing health care coverage through CaIPERS shared the costs of coverage with its employees and retirees. Its medical benefits were partially self-insured and for several decades it had charged both its employees and retirees the same premium amount even though the actuarially determined premium for the older retiree group was significantly higher. Upon further investigation it was determined that the practice of charging a uniform premium was never explicitly authorized by resolution of the agency's governing body or by legislation. Upon advice of its counsel, this jurisdiction changed its practice and began charging retirees a higher health insurance premium amount. As you might imagine, this case (actually two similar cases) resulted in suits being brought by the retiree groups. In both cases the lower courts sided with the employer, essentially stating that a government agency cannot be contractually bound to provide levels of benefits that it has conferred through administrative practice but that were not specifically authorized. One of these cases has been appealed to the federal Ninth Circuit Court of Appeals and we anticipate a ruling perhaps as early as late spring or early summer. For those of you who are court watchers, the case on appeal to the Ninth Circuit is Retired Employees Association of Orange County, Inc. v. County of Orange, 610 F. 3d 1099, 2010 U.S. App. Lexis 13242, 49 E.B.C. 1630 (2010). I've attached to my outline an order from the federal Ninth Circuit asking the California Supreme Court to decide: Whether, as a matter of California law, a California county and its employees can form an implied contract that confers vested rights to health benefits on retired county employees. If the ultimate result of this case upholds the actions of the County, this case will make it much easier for agencies to curtail or rescind benefits, or benefit features, that never were officially approved. What does this all mean? For one thing it means that California public agencies with concerns about their OPEB costs must carefully inventory and evaluate the exact basis for and nature of their OPEB commitments. Later, I'll explain how to begin this process. Only by gathering all of the documents, resolutions, ordinances, MOUs, personnel policies, and employee communications bearing on these issues and having them analyzed by experienced legal counsel, can you determine whether you really have OPEB obligations that you cannot change for current retirees. Although this section of my talk has dealt with a few of the legal issues involved with OPEB, I have not dived into the legal weeds and tried to make you legal experts on California's impairment of contract doctrine and how it affects benefits obligations to retirees. That's because I do not believe that your first and best use with respect to these issues is to become a legal expert on OPEB. Instead, I think your best use is helping to develop and shape an OPEB strategy for your local government or agency and helping to begin the implementation of that strategy. IV. Developing an OPEB strategy and getting started. Phase I: Understanding • Start with a Benefits Inventory, as follows: What You Have • Collect and inventory all relevant retirement plan documents, including: authorizing resolutions: Team: Employee benefits charter documents; ordinances; signed plan counsel, HR and finance documents and signed amendments; personnel directors, in-house general policies and employee handbooks; insurance counsel policies; contract documents and amendments, if in CaIPERS; all plan summaries or descriptions given to employees; or any MOU provisions bearing on retirement benefits. . In many cases, the benefits you provide are largely creatures of historical practice, as well as both formal and informal agency policies. To the extent that these polices are documented, you should gather the relevant documents. To the extent that certain practices are not formally documented and are not reflected in the plan documents, you should prepare a detailed memorandum listing these practices, their origins if known, and the authority for engaging in such practices. . Some public agencies have negotiated special compensation and benefits for key management employees. The documentation of and administrative practices surrounding these benefits may not be widely known or may be contained in an individual employment agreement or offer letter. • Understand the importance of the plan documents and official authorizations (have employee benefits counsel analyze the extent to which various benefits can be legally modified). Phase II: Understanding If • Are they appropriate? The Benefits Are Find the right benchmarks with which to compare Appropriate And (perhaps time to look at the private sector). Sustainable - Were they ever authorized? If not, you need to look at that immediately. Team: Phase I team, plus • Are they sustainable? governing board Basically, sustainability is an issue of relative representative(s), pension & priorities, (see, "New Normal Retirement Plan benefits consultant, CPA, Designs: Re-engineering and Installing actuary. (At some point during Sustainable Pension and OPEB Plans" by Girard this phase it may make sense to , Miller and Jim Link). include bargaining Requires a multidisciplinary team analysis. representatives so that they can understand the fiscal challenges facing the agency). Phase III: Initiating Change • Obtain legal analysis from benefits counsel with respect to what types of changes might be made Team: Phases 1 and I1 team, and the relative risks associated with these plus remainder of top changes. For an interesting list of possible OPEB management. elected board, changes, see "Strategies to Consider as OPEB and union leaders. Costs Escalate" by Girard Miller (included in these materials). • Work with bargaining partners to evaluate benefits "priorities:" which benefits are more or less important. • Recognize methods for controlling benefits costs and liabilities. • Assess whether continued participation in CaIPERS is necessary/prudent. • Increase (or restore) employee contributions. • Negotiate automatic cost-shifting with respect to certain benefits. • Consider migration to a new benefits program. 555 12th Street,Suite 1500 Edward L.Kreisberg Oakland,California 94607 Attorney at Law tel 510.808.2000 ekreisberg @meyersnave.com fax 510.444.1108 www.meyersnave.com meyers nave May 13, 2011 Via Email and First Class Mail James M. Kelly, General Manager Central Contra Costa Sanitary District 5019 Imhoff Place Martinez, California 94553-4392 Re: CCCSD-Evaluation of Benefits Dear Mr. Kelly: This letter is provided in response to your April 26th request for a short proposal describing our qualifications and experience in the areas of pension and benefit reform. We regularly provide the full range of labor relations and employment advice to numerous public agencies in Northern California and across the State, including serving as lead negotiator, advising agencies "behind the scenes" on labor and benefits issues, representing agencies in litigation, arbitrations, grievances and unfair labor practice hearings, and regularly providing training to governing boards and public agency managers on these same issues. Meyers Nave is general counsel or city attorney to over thirty agencies (including CCCSD and other agencies in Contra Costa County), and regularly advises these and many other agencies on their labor and employment issues. As you know, since the economic downtown, the landscape for labor negotiations has changed significantly. With reduced revenues and escalating costs (including in the areas of pension and health benefits), public agencies throughout California have struggled to balance budgets, maintain services and avoid unwanted layoffs and furloughs. Agencies also have had to declare fiscal emergencies and/or take dramatic measures to avoid bankruptcy. We have advised numerous agencies on these issues, often "at the table," or in resulting litigation or arbitrations. We also work with o agencies at the "front-end"nt-end" to develop approaches that address agencies' financial g P a PP g needs, move agencies' toward more sustainable and appropriate benefit levels for the future, maintain the best possible relationships with labor and are legally (and politically) defensible. A PROFESSIONAL LAW CORPORATION OAKLAND LOS ANGELES SACRAMENTO SAN FRANCISCO SANTA ROSA FRESNO James M. Kelly, General Manager May 13, 2011 Page 2 Here are a few examples of ways in which we have helped public agencies on these subjects: • The City of Stockton faces a large structural deficit and has declared a fiscal emergency. Consequently, the City needed to strike deals with its employee groups to address the shortfall in its general fund. As lead negotiator, we helped the City reach agreements with these groups to reduce the cost of employee compensation for the next fiscal year. We also helped the City to create a blueprint for fiscal sustainability, including changes in the areas of healthcare, retiree healthcare and retiree benefits. A copy of this blueprint is attached, and represents an example of the kind of policy document the District's Board could consider approving. • We successfully defended the County of Orange in a federal lawsuit brought on behalf of 4,600 retirees challenging one of the County's reforms to its retiree health program. The Court concluded that the County's 20 year practice of"pooling" active employees with retirees for purposes of setting health premium rates did not constitute a vested benefit for retirees. • We have represented the City of Santa Clara in negotiations with all its bargaining units and unions over the last five years. Due to the City's significant structural deficit, we recently successfully negotiated concessions with eight of the City's ten bargaining groups in the form of furloughs and employees giving back scheduled increases. These concessions, in addition to limited layoffs, resulted in total savings of 10-14% per bargaining group and approximately $10 million per year in the City's general fund. • We have provided legal advice to numerous agencies on "final compensation" including providing opinion letters and an in-person presentation to one special district in Contra Costa County on what forms of compensation must be included in a CCCERA pension, and what types of compensation may be changed so as to reduce the District's pension costs. • We successfully negotiated a successor MOU with the National City Police Officers Association, which achieved concessions on a second tier retirement for new hires, an employee contribution to Ca1PERS and modifications in overtime eligibility. We also advised the City through the impasse procedure for its Service Employees International Union-represented Association, and are representing the City in its firefighter negotiations. A PROFESSIONAL LAW CORPORATION OAKLAND LOS ANGELES SACRAMENTO SAN FRANCISCO SANTA ROSA FRESNO James M. Kelly, General Manager May 13, 2011 Page 3 • We either have or are representing the City and County of San Francisco on a number of related items, ranging from successfully defending San Francisco in "final compensation" class action pension lawsuits brought by their fire and police groups as well as a recent challenge to Measure G concerning the applicable impasse procedures for labor negotiations. • We recently helped the City of Union City through the impasse process that became necessary when the City and its negotiator were unable to reach agreement. In addition, we successfully defended the City in Martineti et al. v. City of Union City, a lawsuit brought by former City employees alleging entitlement to greater retiree healthcare benefits and contesting the effective date and meaning of certain rules within Ca1PFRS. • We currently are negotiating with unions and associations in various jurisdictions to achieve cost savings and to reduce the cost of benefits, including for the San Ramon Valley Fire Protection District. With respect to the District's specific pay and benefits, there remain a range of options, depending on the Board's preferences. I have attached my handout from a recent pension reform conference in which I outline in Section IV a menu of options your Board could consider. Based on your letter and a general review of the enclosed documents, areas for potential savings and reform include: 1. Salaries,: The District could move away survey based adjustments and/or move to total compensation surveys for information purposes only. The District could also evaluate any other types of pay (specialty pays, longevity pay, differentials, incentive pays) that are treated like salary but are not included as part of salary. The District also could look at a range of other options ranging from adding steps to its salary ranges to a pay for performance system. The District also could evaluate its overtime practices. For example, the District could stop what appears to be its current practice of paying at an overtime rate for all hours worked outside an employee's regular schedule rather than for hours actually worked in excess of 40 in the applicable work week. The District also could evaluate whether there are available more beneficial FLSA work periods. (For example, a Section 7(b) work period does not require payment of overtime if an employee averages forty hours per • week over a six month period, even if the employee works more than forty hours in particular weeks. 2. Health: There are many steps the District could take to address the spiraling cost of health benefits for current employees. In addition to those outlined in the attached conference handout, the District could choose to only pay up to the least expensive HMO plan, or require cost sharing of future increases or pay a lesser portion of dependent premiums, or negotiate a flat dollar amount obligation that A PROFESSIONAL LAW CORPORATION OAKLAND LOS ANGELES SACRAMENTO SAN FRANCISCO SANTA ROSA FRESNO James M. Kelly, General Manager May 13, 2011 Page 4 would stay the same unless bargaining groups successfully negotiated greater District contributions. All of these options are available for all current employees regardless of the fact the District previously chose to distinguish between those hired before or after June 30, 2009. 3. Retiree Health: The District should closely evaluate the nature of the promise in effect at the time persons in the three tiers retired to determine whether the District is paying more than it must, or if there is flexibility to change any aspect of what the District is currently providing (e.g. plans offered, dependent coverage, etc.). With respect to current employees, recent case law has shown a greater ability to make changes in retiree health benefits (including the level of benefits and/or the requirements for eligibility). Accordingly, the District could consider changes in retiree health benefits for current employees the District categorizes as falling under Tier III, Tier II or Tier I. 4. Pension: In addition to potential and actual legislative/CCCERA changes regarding spiking, the District should evaluate whether to reduce or eliminate some of the types of compensation and/or cash-outs it currently provides to achieve direct savings and indirect savings in pension costs. The District also could consider greater employee contributions to their own pensions as well as a second/lesser tier retirement for new employees. The District also could evaluate its current practice of contributing moneys to a 401(a) money purchase plan. Thank you in advance for your consideration. We certainly would welcome the opportunity to meet with the Board and to advise the District in advance of its next round of labor negotiations and to serve as lead negotiator in those negotiations. Very truly yours, ihfiAii Ot Lk, t (j--- Edward L. Kreisberg ILK:jh Enclosures c: Kenton L. Alm 1645511.1 I A PROFESSIONAL LAW CORPORATION OAKLAND 105 ANGELES SACRAMENTO SAN FRANCISCO SANTA ROSA FRESNO Resolution No. 10-0199 STOCKTON CITY COUNCIL RESOLUTION BY THE CITY COUNCIL OF THE CITY OF STOCKTON ADOPTING AN ACTION PLAN FOR FISCAL SUSTAINABILITY By City Council Resolution No. 10-0166, adopted on May 26, 2010, the City declared a state of emergency based on fiscal circumstances; and The City is committed to implementing a plan that will restore long term fiscal integrity for the benefit of the City's citizens; and The City desires that its Action Plan be transparent and understandable throughout the community; and The City values its employees and wants to compensate them fairly and appropriately; and The City's labor contracts include a host of costs and features that create inappropriate escalating and unfunded liabilities; and The City desires to clearly articulate a plan that will serve as the blueprint for future labor neogotiations; now, therefore, BE IT RESOLVED BY THE COUNCIL OF THE CITY OF STOCKTON, AS FOLLOWS: 1. The City Council of the City Stockton hereby adopts the attached Action Plan for Fiscal Sustainability. 2. The City Manager is authorized to take such actions as are appropriate to carry out the intent of this Resolution. PASSED, APPROVED and ADOPTED JUN 2 2 2010 • 1 o�,�oui4n�o N JOHNSTO► , ► ayor the City of S o. ton —71T EST- KATHERT • .ASS ty Clerk Cit of Stockton ::•DMA\GRPW SE\COS.C• .CM_Library:93542.1 City Atty: Review 17.4"-- Date June 17, 2010 ACTION PLAN FOR FISCAL SUSTAINABILITY AS ADOPTED BY THE CITY COUNCIL OF THE CITY OF STOCKTON JUNE 22, 2010 Introduction The City of Stockton ("the City") faces immediate and long term challenges caused in part by escalating and unfunded costs in its labor agreements. The City greatly values its employees and the services they provide to the community. However, labor costs have escalated exponentially and unfairly, particularly when compared to the more modest wage and benefit programs covering the majority of the City's citizens. It is unacceptable that some of the City's labor unions have insisted on higher wages and benefits at a time of recession - when the City's unemployment rate is approximately 22%, and the median household income for family of four is just over $63,OQ0. .. 'rhis ten point Action Plan. is intended to serve as a policy blue;printfor the City's labor relations program The City is committed to abiding by the Meyers-Milias-Brown Act ("MMBA"), and will continue to negotiate in good faith, seeking partnerships whenever reasonably possible with labor. This Action Plan shall serve as the benchmark for future objectives with labor. Issues and Action Plan Principles Issue No. 1 — Transparency / Hidden Costs: The City's labor agreements contain embedded costs and obligations that are often difficult for citizens to identify or understand. For example, the City's payroll system carries over 100 different "additional pay" codes ranging from "assignment pay" to "longevity pay" and others. In many instances, these are simply disguised forms of Page 1 regular salary. These additional pays make it difficult for the public to evaluate and understand the overall compensation of City employees. Action Plan Principle No. 1: The City shall reduce or eliminate 'additional pay" categories. "Additional pays" will be authorized only when the additional pay is absolutely essential to the performance of special job tasks that are not encompassed within the job description. The City shall ensure that all compensation packages are fully, accurately and simply costed out, with total costs displayed to the public so that city residents can understand and evaluate the pay at issue. Unless there are exigent circumstances as determined by the City Council, labor agreements containing cost increases shall be publicized and made available at least two weeks prior to adoption. Issue No 2 — Transparency I Side Letters: The City is aware of certain "side agreements " other informal memoranda memorializing understandings between departments labor unions and 'past practices" alleged to bind the City. Such "side agreements' and allegedly binding "past practices" are inappropriate because they increase costs, and detract from two critical principles: (1) the public has a right to know the contractual arrangements and obligations affecting public employees; and (2) pursuant to state law, labor commitments by a public agency must be approved by the City Council. Action Plan Principle No. 2: No side agreements or past practices shall be binding on the City unless the agreement or practice is approved in public by the City Council. New labor agreements shall supersede all previous agreements and practices, and shall not contain language preserving previous agreements or practices. Page 2 Issue No. 3 — Salary Formulae: Various City labor agreements contain wage and salary formulae that mandate automatic wage increases regardless of economic reality based upon compensation paid in other cities and/or changes in the cost of living. For example, the Police Officers Association ("POA") recently filed a grievance to enforce a wage formula that the POA contended required the City to give a 23% wage increase as of July 2008. The salary formula itself required the City to compare salaries from communities that have little or marginal relevance to Stockton, including Irvine, Glendale, Anaheim, Chula Vista and Bakersfield. The City eventually settled, resulting in a retroactive wage increase of 15% at a time when the City was in the midst of a financial crisis, and many of the City's citizens weresuffering from layoffs and reduced pay. r; The Fire Union is currently asserting the right{o an 8.5% raise based on a similar sala 'fo j a, Which cq f" rs �G,inat adieu trrients,base o irratloT I cgmpan4,o to �.' i l . . corn untie including Artaheirn Fresno, Garden Grove, untingte0 eachr Pasadgna, San Bernardino, Santa An and Torrance. 17'.In addiitt'ion, the fire ypcontract would provide 1 ZI :..i :',1; Y r �4 r i ;�Y '(. �, wd S -�:I:.r IC � ,:i+`•+;S•for a 3.6% increase based upon a cost of•living formula. Action Principle No. 3: The City's labor agreements shall not provide for automatic wage adjustments that are premised on formulae or automatic cost of living inflators. I Issue No. 4 — Fairness and Parity: The City's labor agreements have staggered terms, meaning that they expire at different times. This results in a "ratcheting effect" — i.e., the next union to negotiate looks to the last agreement and attempts to negotiate a better agreement. It also results in differing benefit structures and work rules. And, it Page 3 makes it difficult to ensure across-the-board fairness in City-wide programs that should be given uniform treatment. Action Principle No. 4: The City shall strive to have its labor agreements expire at the same time — particularly with public safety unions. Issue No. 5 — Contribution to Health and Welfare Benefits: Many of the City's employees make no contribution toward health benefits. For example, City firefighters pay nothing for health coverage, regardless of whether they are single, married or in a family plan costing over $1000 per month. This situation is in stark contrast to the vast majority of the City's residents, many of whom must contribute toward their health care, and some of whom have no health care coverage at all. The situation is not only costly and out-of-step with other jurisdictions, it is unfair. Action Principle No. 5: The City shall require its employees to make reasonable contributions toward the cost of health care coverage provided through the City. Issue No. 6 - Health Plan: The City currently offers only one health plan, a self-insured plan, with the plan design itself embedded into various labor contracts. Because the plan elements are embedded into labor contracts, it is cumbersome for the City to make changes that provide efficiencies and savings, even when those changes have little fiscal impact on employees and retirees. In addition, because the City only offers one plan — a quality plan that has a relatively high cost — City employees have no health care choices. Page 4 Action Principle No. 6: The City shall offer one or more additional health care insurance plans. The City's contributions shall be negotiated based on the lowest cost plan made available by the City. Issue No. 7 — Retirement: City employees are guaranteed a specific, annual pension at retirement. The City currently pays 100% of the retirement contribution to the California Public Employee's Retirement System (CaIPERS) for all employees. The City contribution is expected to exceed 20% of the City's payroll costs over the next few years for non-safety employees and 40% for safety employees. In addition, current retirement is based on the highest year of salary earned. This practice is inconsistent with both public and private sector employers. Regular, non-safety employees receive lifelong pensions calculated using a formula of "2% at age 55." t}a , g , ity= k to 4wit 3 0 of sirvic rz eiv .,�.% it st K. ,. + '� r• r' .: 'li,. , .. X4.1 ,.-rrs ary life. x..01 It • Regular City emlloees with 20 years of pqrvi.cq.lecieiye 40% of their highest year's salary for life. • Retirees receive an annual COLA of up to 5% a year. Safety employees receive "3% at age 50." Upon retirement, an employee will annually receive 3% of their highest year's salary, multiplied by the number of years of service. • Safety employees with 30 years receive 90% of their highest year's salary for life. Page 5 • Safety employees with 20 years of service receive 60% of their highest year's salary for life. • Safety retirees receive an annual COLA of up to 2% a year. Action Principle No. 7: The City will require its employees to contribute a fair share of their pension costs. CaIPERS sets a required "employee" contribution: currently 7% for non-sworn employees, and 9% for sworn employees. City employees shall pay the entire employee contribution. In addition, the City shall negotiate "cost share" agreements with employees to share the total burden of city pension costs, as provided under PERS rules. Further, the City shall negotiate to establish a "second tier" pension benefit for new employees entering the workforce, costing less than the current plans and reducing overall City costs over the long run. Issue No. 8 — Time Off Benefits: Currently, City employees receive paid time off for holidays, vacation days, and sick days. Employees can accumulate up to 8 weeks of vacation annually. Vacation time is converted to cash through "sell-back," or at termination or retirement. Employees can accumulate an unlimited amount of sick leave; half of an employee's sick leave is converted to cash at retirement and the other half can be added to years of service for the calculation of the retirement benefit. Staffing shortages, furloughs and closed Fridays create larger banks of accumulated vacation time that must be paid out when not used. The budget impact is often unpredictable and unmanageable, which reduces the City's ability to deliver services to the public. Action Principle No, 8: The City will establish vacation use work rules that limit the accumulation of vacation time and provide for use with management approval to Page 6 ensure that the needs of the public take priority and overtime is minimized. The rules shall also limit the practice of converting vacation and sick leave to cash to situations when such cash-out is legally required. The City shall evaluate the current leave programs and implement reasonable reforms consistent with programs in the public and private sectors. Issue No. 9 - Work Rules: The labor contracts, and informal department policies, contain staffing work rules that limit management discretion and are highly inefficient. The Fire Union contract, for example, contains a variety of staffing mandates that purport to remove any discretion on the part of the City to adapt to the needs of the service and modernize. For example, the labor contract provides that fire trucks must be staffed by five firefighters, when the vast majority of jurisdictions safely operate fire trucks with four persons, and the contract contains numerous other dictates that hamper the Fire Chiefs ability to manage the workforce efficiently. Action Principle No. 9: The City shall regain its management rights to supervise, manage and direct its workforce. The City shall not enter into labor contracts that contain inflexible staffing requirements or unreasonable restrictions on the City's management rights. Issue No. 10 — Overtime: The City's overtime practices are out-of-step with the federal Fair Labor Standards Act ("FLSA"). In some highly publicized cases, employee overtime has exceeded employee base pay. There are opportunities for abuse when employees take sick or other leave that require the callback of another employee at overtime rates. Page 7 Action Principle No. 10: The City shall restructure its labor agreements to bring overtime obligations in line with the minimums required by the Fair Labor Standards Act. The City shall minimize the use of unnecessary overtime. ::ODMA\GRPWISE\COS.CA.CA Library:57812.1 A comrnFtinnt to Pubic La* Page 8 BOOT CAMP FOR ELECTED OFFICIALS Negotiating Reductions in Employee Benefits Eddie Kreisberg, Meyers Nave ekreisberg(&,,meyersnave.com 510.808.2000 California Foundation for Fiscal Responsibility Sacramento, California May 5, 2011 Negotiating Reductions in Employee Benefits By: Eddie Kreisberg, Meyers Nave ekreisberg@meyersnave.com May 5,2011 LEGAL CONSTRAINTS UNDER LABOR LAW (MMBA) A. Duty to meet and confer in good faith through completion of applicable impasse procedures B. Usually don't have right to change benefits in labor contract during term of labor contract C. Need to provide information and justifications for positions D. Need to comply with impasse procedures (mediation and/or interest arbitration and/or imposition) E. Threat of unfair labor practice charges based on direct dealing, regressive bargaining, failure to bargain in good faith, unilateral implementation, etc. F. Influences how agency positions negotiations and proposals for mediation and/or imposition II. CHALLENGES ELECTED OFFICIALS CAN EXPECT A. Risks of direct dealing with employees and direct negotiations with unions B. Balance need for coordinated table message, information campaign and citizens' interest in negotiations with potential claims of interference with union representation and bad faith bargaining C. Avoid violating Brown Act by revealing content of closed sessions D. Union promises and threats regarding elections E. Imposition of terms and conditions ultimately will occur in public meeting F. How to give unions a reason to vote "yes"on concessions G. Coordinating message with negotiators and other agency business H. Elected officials need greater understanding of financials and bargaining issues 1 This general rule is subject to potential exception, such as in the case of a true fiscal emergency. Negotiating Reductions in Employee Benefits By: Eddie Kreisberg, Meyers Nave ekre i sberg(a�meyersnave.com May 5, 2011 I. Lack of overall "Action Plan" or blueprint for Labor Relations (See, for example, "Action Plan for Fiscal Sustainability" prepared by Meyers Nave for the Stockton City Council at www.meyersnave.com) III. UNIONS' USUAL ARGUMENTS AGAINST REDUCTIONS A. "You [elected official] promised to support us if we supported you." B. "Other agencies haven't done this. Why should we go first?" C. "We'll become a training ground." D. "We won't be able to recruit or retain." E. "Having different tiers will create friction among employees doing the same work for different pay or benefits." F. "A second tier pension benefit will barely save any money, especially in the short term." G. "Pension reform is more of a political than a real issue and not something needed to address your financial challenges." H. "There are other options for pension reform besides a 2nd tier retirement." I. "You need to figure out what's important to you, but can't expect us to agree to a second tier in addition to all these other draconian proposals." J. "We're willing to help you with your short-term financial crisis but your proposals go too far." K. "You shouldn't balance the budget on the back of employees" and "You should instead use reserves, or cut waste, or cut elsewhere." L. "We relied in good faith on your promises and now you are breaking it." IV. A MENU OF POTENTIAL BENEFIT CHANGES A. Pension 1. 2nd tier for new hires (lesser formula and final 3 year average rather than highest year) 2. Require employee contributions to pension 3. Cost sharing of increased rates Negotiating Reductions in Employee Benefits By: Eddie Kreisberg, Meyers Nave ekreisberg tni,meyersnave.com May 5,2011 4. Move toward deferred compensation or other defined contribution B. Potential2 Retiree Health Options 1. More years of service to qualify 2. Lesser contribution 3. Stop paying for dependent coverage 4. Eliminate expensive"Cadillac"plans 5. Require "retirement" at time of separation to qualify 6. Move to defined contribution rather than defined benefit (e.g. VEBA or Medical After Retirement Account) 7. Adopt retiree medical trust to reduce GASB liability 8. Require retiree to enroll in Medicare 9. If tied to what actives get, reduce what actives get 10. End pooling of actives with retirees for rate setting3 11. Get out of PERS health to avoid PERS health rules regarding contributions to retirees (see also discussion in Section V.) C. Health Benefits (Actives) 1. Flat dollar cap on Agency's obligation 2. Cost sharing above current obligation 3. Different amount for ee only, ee+1 and ee +family 4. Reduce health plan options or peg obligation to cheaper plan 5. Change health plan provider D. Leaves 1. Lower accrual rates 2. Lower maximum accruals 3. Eliminate or reduce annual cash-outs or conversions 4. Eliminate or reduce cash-out at separation 5. Control impact of compensatory time off E. Wages 1. Freeze on increases or implement decreases Before pursuing these changes,we recommend your agency consult with legal counsel regarding the agency's legal right to make certain of these changes and/or regarding the legal risks associated with a particular change. A very general discussion of potential legal risks is included in Section V. 3 We successfully represented the County of Orange in REAOC v. County of Orange in which thousands of retirees claimed the County's decision to end"pooling" of actives with retirees for purposes of setting health premiums violated a vested right of retirees to be pooled with actives. Negotiating Reductions in Employee Benefits By: Eddie Kreisberg, Meyers Nave ekreisberg(a,meyersnave.com May 5, 2011 2. 1-time stipend rather than wage increase 3. Revisit assumptions of survey based wage adjustments 4. Pay overtime based on statutory standard rather than more beneficial standard (e.g. hours actually worked over 40 in a work week rather than hours in a paid status over 40 in a workweek or all hours outside regular schedule) 5. Make effective date of increases on last day of year 6. Freeze step advancements or merit increases V. LAWS RELEVANT TO CHANGES IN RETIREE HEALTH A. Labor Law (see discussion in Section I) B. CaIPERS Law: General Ca1PERS Health(PEMHCA) rule is that agency must make same "PEMHCA Contribution"to retirees as actives. This requirement is separate and apart from any vested rights issues. Options for flexibility despite this general rule include: o adopt the"unequal method;" o pay the"PEMHCA minimum"per a bona fide cafeteria plan; o adopt vesting schedule for new hires under Gov't Code § 22893; and o change the District's health care provider. C. Vested Rights Doctrine Future Hires: probably no vested rights constraints for retiree health changes applicable to future employees Current Employees: potential constraints but law is better now, especially for represented employees: o Need to closely scrutinize what governing board approved promises agency has made, and whether those promises are subject to change through collective bargaining. Recent Ninth Circuit case indicates agency can change eligibility requirements or amount of retiree health benefit for represented employees without violating vested rights. o Should analyze whether agency has done anything to prevent vesting(e.g. a no vesting provision) o Agencies might consider (per pension benefit law) whether to replace an allegedly promised retiree health benefit with an Negotiating Reductions in Employee Benefits By: Eddie Kreisberg, Meyers Nave ekrei sberOrneyersnave.com May 5, 2011 equivalent other benefit (e.g. a defined contribution to a health- related account during term of employee's employment) Current Retirees: significant constraints regarding changing retiree health benefits for persons already retired unless change is not inconsistent with District's promise at time of individual's retirement(e.g. a promise to pay whatever actives get and then reduce what actives get; or, a promise to pay for health coverage as opposed to a retiree's preferred health plan.) meyers . nave EDWARD KREISBERG Edward"Eddie" Kreisberg specializes in providing labor and employment litigation, advice,arbitration, administrative hearing and negotiation services to public and private employers throughout the State of California. His expertise includes representation of employers in discrimination, harassment, retaliation,wage and hour, benefits, and labor agreement lawsuits. Eddie also regularly advises employers on the full range of labor and employment issues, including layoffs and furloughs, accommodation of disabilities, discipline,grievances, the Family Medical Leave Act (FMLA),California Family Rights Act (CFRA),pension, health,privacy, Public Employment Relations Board (PERB) charges, overtime, the Police and Firefighter Bill of Rights Edward Kreisberg Acts,labor relations, harassment,drug and alcohol, and Principal violence in the workplace. 555 12th Street,Suite 1500 Oakland,CA 94607 Eddie also represents employers in discipline,grievance, and interest arbitrations, as well as administrative hearings before T:510.808.2000 civil service commissions,the Public Employment Relations F:510.444.1108 Board,the California Public Employees' Retirement System ekreisberg @meyersnave.com y (CaIPERS), the Department of Labor and the Employment Practice Group Development Department. He regularly audits public agency Labor and Employment rules,labor contracts, job descriptions and payroll practices California Bar Number to ensure compliance with wage and hour laws. 179528 In addition to the other aspects of his law practice,Eddie is Education a sought after negotiator and advisor on all aspects of labor University of California at Davis School of g g P Law,JD, 1995 relations. His work includes negotiating and advising on University of California at Berkeley, BA successor Memoranda of Understanding (MOLT), side Economics and History, 1990 letters, personnel rules,employee handbooks, department policies, civil service rules,past practice and employer- Practicing Since: 1995 employee relations resolutions. Prior to joining Meyers Nave, Eddie worked as an attorney for Liebert, Cassidy& Frierson where he defended and advised public agency clients in all aspects of labor and employment law. He previously clerked for federal Magistrate Judge Louisa Porter in the U.S. District Court, meyers nave Southern District of California, advised Congressman Robert T. Matsui on legislation and policy issues, and interned in the Office of Congressman Mel Levine. He has clerked for both an insurance defense law firm and the Alaska office of a national firm representing Native American governments. Representative Experience MOU Negotiations The following is a representative list of cities for which Eddie has served as chief negotiator for MOU negotiations: City of Santa Clara • Santa Clara Electrical Workers, International Brotherhood of Electrical Workers (IBEW) Local 1245 • Santa Clara Employees'Association • Santa Clara Field Operations and Maintenance Unit,American Federation of State County and Municipal Employees (AFSCME) Local 101 • Santa Clara Police Officers'Association • Santa Clara Professional Engineers • Santa Clara Public Safety Non-Sworn Employees'Association • Santa Clara Firefighters, International Association of Firefighters (IAFF) Local 1171 • Santa Clara Management,Police Management and Fire Management Associations City of Union City • Union City Firefighters, IAFF Local 1946 • Union City Police Officers'Association City Stockton • Trades and Maintenance Unit, Operations and Maintenance Unit,Water Supervisory Unit, Operating Engineers Local 3 • Stockton Mid-Management/Supervisory Level Unit City of National City • National City Police Officers'Association • National City Firefighters, IAFF Local 2744 meyers nave City of Galt • Galt Police Officers'Association • Galt Public Services Unit,Operating Engineers Local 3 City of Milpitas • Milpitas Confidential and Mid-Management Unit, LIUNA Local 270 • Milpitas Employees'Association,LIUNA Local 270 • Milpitas Police Officers'Association • Milpitas Professional and Technical Group, LIUNA Local 270 • Milpitas Supervisors'Association,LIUNA Local 270 City of Capitola • Association of Capitola Employees,LIUNA Local 270 • Confidential Employees'Association • General Government Employees,LIUNA Local 270 • Mid-Management Employees'Association • Police Management Employees'Association City of Cloverdale • Cloverdale Classified Employees' Association • Cloverdale Dispatchers'Association • Cloverdale Police Officers'Association City of Fairfield • Fairfield Police Officers'Association • Fairfield Police Management Association • Fairfield Professional Fire Fighters' Association City and County of San Francisco • Municipal Attorneys'Association Crescent City Harbor District • Employee Association (Carpenters) Meyers nave Menlo Park Fire Protection District • Menlo Park Fire Protection District and Menlo Park Firefighters, IAFF Local 2400 Novato Sanitary District • Teamsters,Local 490 Scotts Valley Water District • Employees' Organization Arbitration Experience • Fremont Association of City Eniloyees v. City of Fremont. Represented the City of Fremont in a grievance brought by the Fremont Association of City Employees. The Fremont Association of City Employees alleged that the City of Fremont violated the MOU and failed to meet and confer regarding assignment of"patrolling"job duty following layoffs. The arbitrator ruled in favor of the City of Fremont and denied the grievance. • IAFF Local 55 v. City of Oakland. Represented the City of Oakland in an arbitration hearing regarding rights of IAFF Local 55 to arbitrate claims related to retiree health benefits. The arbitrator ruled in favor of the City of Oakland.The IAFF Local 55 subsequently dismissed the underlying grievance. • Milpitas Police Officers Association v. City of Mi pitas. Represented the City of Milpitas in a grievance filed by the Milpitas Police Officers Association. The Milpitas Police Officers Association alleged that the City of Milpitas was not honoring holiday pay for employees working schedules consistent with the MOU. The arbitrator ruled in favor of the City of Milpitas and denied the grievance. • Ross v.Xformic, Inc. Represented a technology company in a Department of Labor hearing concerning a complaint of contractor for overtime. The Department of Labor dismissed the claim. They concluded the claimant was an independent contractor; therefore, he had no justification to claim overtime. • South San Francisco Police Association v. City of South San Francisco. Represented the City of South San Francisco in a grievance filed by the South San Francisco Police Association. The South San Francisco Police Association alleged that the City was violating the MOU by not cashing out sick leave for separate employees with 20 years of service who did not retire with 'CaIPERS. The arbitrator ruled that the City of South San Francisco's practice was consistent with the MOU and denied the grievance. • Association ofBayArea Governments v. SEIU Local 1021. Represented the Association of Bay Area Governments (ABAG), a non-profit planning organization serving cities and counties in the Bay Area,in a grievance concerning ABAG's procedural obligations when reducing the weekly schedule of a grant-funded employee due to a reduction in available funding and an agreement that the employee's full-time schedule was temporary. meyers nave Litigation Experience • Anderson et al.. v. City of Vacaville. Represented the City of Vacaville in an FLSA lawsuit filed by over 90 current and former police officers in the Vacaville Police Department. The case achieved a favorable settlement on behalf of the City of Vacaville. • Barnes v. Northern California Power Agency. Defended Northern California Power Agency (NCPA) in a lawsuit brought by a former employee alleging age and disability discrimination and retaliation. NCPA received a complete judgment based on a favorable court ruling on a motion to dismiss. • Carrana et al. v. Town of Los Altos Hills et a/. Represented the Town of Los Altos Hills in a wage and hour, discrimination,retaliation and tenancy lawsuit filed by employees of a lessee of the Town of Los Altos Hills. The Court dismissed all claims against the Town of Los Altos Hills except those related to tenancy, a claim of which was subsequently settled. • Eng v. Santa Clara Valley Water District et al. Represented the Santa Clara Valley Water District in this case involving allegations of discrimination and retaliation for whistleblowing brought by the District's former budget officer. The Court granted the Santa Clara Valley Water District's motion for non-suit. • Fairfield Police Officers Association v. City of Faield. Defended the City of Fairfield in a writ and injunction action filed by the Fairfield Police Officers union.The case resulted in a subsequent settlement; the best final offer is pending following contract negotiations. • Hart et al. v. City of South San Francisco. Defended the City of South San Francisco and South San Francisco Police Department in a marital discrimination and harassment lawsuit brought by a police sergeant and his wife,and a Police Department evidence clerk. Received a favorable settlement for the City of South San Francisco and South San Francisco Police Department. • Martinez et al. v. City of Union City. Representing the City of Union City in writ action challenging the amount of the City's PERS health contributions to retirees and the effective date of changes in PERS health law. • Mitchell et al. v. County of Tuolumne. Represented the County of Tuolumne in a lawsuit filed by several former County employees seeking increased retirement benefits. The case achieved a complete dismissal,which was upheld by the Court of Appeal for the Fifth District. • Moes v. City of Hanford. Represented the City of Hanford in a lawsuit concerning a police officers' alleged right to wear a goatee under the facial hair grooming standard set forth in the MOU. The Court granted the County's motion for summary judgment. • Retired Employees Association of Orange County v. County of Orange, Case No. SACV 07-1301 AG (MLGx). Successfully defended Orange County against a federal lawsuit brought by the Retired Employees Association of Orange County challenging the methodology and rates set for retiree health care and asserting"vested rights" to retiree health care benefits.The meyers I nave County's actuary earlier estimated the unfunded liabilities relating to the County's retiree medical program at approximately$1.4 billion. • Yates et al. v. Young Women's Christian Association(YWCA). Helped settle a race and gender discrimination and harassment lawsuit filed by three current and former employees of the YWCA. Presentations and Publications • Speaker, California Foundation for Fiscal Responsibility,2011 • Speaker,Northern California Chapter of the International Public Management Association- Human Resources (NCCIPMA-HR), 2010 • Speaker, California Public Employers Labor Relations Association (CALPELRA),2005-2010 • Speaker, County Counsels'Association Employment Law Conference,2004 and 2010 • Speaker,League of California Cities (LOCC), 2003 and 2010 • Speaker, State Bar of California,Labor and Employment Section, 2009 • Speaker, State Association of County Auditors, 2009 • Speaker,Municipal Management Association of Northern California (MMANC),2003 and 2009 • Speaker,Association of California Water Agencies (ACWA),2003 and 2007 • Speaker, International Public Manager Association (IPMA),2004, 2005 and 2006 • Speaker, California Society of Municipal Finance Officers (CSMFO),2005 • Speaker, Southern California Public Labor Relations Council(SCPLRC), 2005 • Speaker, Bay Area City Attorneys (BACA),2000 • Speaker,Public Agency Risk Managers Association (PARMA) • Speaker,numerous client briefings at Meyers Nave's offices and agency-specific presentations • Author, "Mental Disabilities Under the American with Disabilities Act (ADA)," CPER, 1997 • Speaker, specialized training for numerous public agencies on issues such as harassment, discrimination,retaliation,overtime, the Firefighter Bill of Rights Act, medical leave laws, labor relations and negotiations, references checks, discipline, and privacy issues Professional Affiliations • Member,The State Bar of California • Member,Alameda County Bar Association, Labor&Employment Law Section meyers nave