City gets wake-up call on retirement benefits

City of Malibu

With a sharp spike in healthcare premiums, city officials plan to restructure the city’s retirement benefits package after a consultant last week said Malibu was not setting enough funds aside to account for a rising number of city retirees. The changes could see city employees begin paying for part of their retirement plans.

“The bad news is we think you should be contributing more… but you have time to set money aside before it becomes a drain on the city,” said John Bartel, a financial risk analyst contracted by the City of Malibu, in a presentation Friday last week at City Hall.

Between 2012 and 2013, the city’s average contribution to a  retiree’s monthly healthcare premium rose 10 percent, compared with a 4 percent rise between 2011 and 2012, according to numbers prepared by Bartel. The city’s average contribution to a retiree’s monthly healthcare premium rose this year from $566 to $622 for a single party, $1,074 to $1,183 for a two-party plan and $1,382 to $1,515 for a family plan.

The city spent $244,000 on post-retirement benefits in Fiscal Year 2011-12, and planned to spend roughly the same amount—$251,000—in Fiscal Year 2012-13. But Feldman said she revised the amount upward to $355,000 after Bartel reported his findings to city staff.

“When we talked about this years ago I didn’t take into consideration this huge spike in healthcare premiums,” assistant city manager Reva Feldman said before the Administration and Finance (A&F) Subcommittee on Friday.

Feldman and City Manager Jim Thorsen assured A&F Subcommittee members Mayor Lou La Monte and Councilman John Sibert that the city was not in any current financial danger with its retirement plan commitments. But they agreed with Bartel, who recommended the city lay out a longterm policy to account for a rising number of city retirees that factors in projected rises in healthcare and other post-employment benefit costs.

According to the city’s records, 23 of its 66 active employees are at least 50 years old (the earliest age at which one can retire), and 13 of those 23 have worked for the city for at least five years—the minimum number of years required to begin accumulating retirement and pension benefits.

“Right now you have really only a dozen receiving the benefit compared to 66 actives, and that’s a low ratio, but it’s going to go up as more of your employees retire,” Bartel said. “The good news is you really have time before you get to that large ratio, and that’s different than most other agencies.”

Currently, full-time city employees do not pay into the California Public Employees’ Retirement System (CalPERS), the state agency Malibu uses to manage its employee retirement benefit and pension plans.

The City of Malibu, like many other cities, covers both the employee and employer contribution for a total of 18 percent (11 percent employer contribution, 7 percent employee contribution). But with financial analysts projecting consistent annual increases in healthcare costs and CalPERS percentage contribution rates, city officials foresee a tighter pinch to the city’s wallet.

Failure to plan ahead has seen several California cities declare bankruptcy in recent years in part because of overwhelming pension and retirement benefit plans.

In August 2006, San Bernardino’s City Council lowered the minimum retirement age for public safety workers from 55 to 50. By the end of 2007, nine percent of the city’s annual budget was going to pensions. Just five years later, that number had leapt to 13 percent, and its City Council voted to file an emergency bankruptcy claim. San Bernardino is now more than $13 million behind in retirement payments to CalPERS.

Stockton officials filed for bankruptcy last June, citing rising pension and benefit costs, a sluggish local economy and a drop in tax revenue.

To avoid similar pitfalls, Feldman said she plans on meeting with Bartel and Thorsen to map out a plan of action for employee benefits, which she said would come back to be discussed by the A&F Subcommittee and, eventually, the City Council.

One of the options she plans on discussing is having employees begin paying into their own retirement plans.

“We want to make sure we have a formal policy in place and we do that as soon as we can so that if there is a contribution that’s going to be asked of employees, even if that means less take-home for people, we want to put some kind of policy in place,” she said.

While La Monte said he was eager to hear out any future suggestions, cutting pay to make up for retirement plan contributions could make employment with the city a tougher sell.

“It’s hard to attract more people when you’re cutting their benefits,” he said.