County pension plan getting on track

As other governments around the state struggle with pensions and their frightening fiscal implications, San Luis Obispo County leaders and their employees continue their long, steady march toward making employer-employee financial relations as painless as possible.

Ninety percent of county employees have now agreed to two-tier pension plans, Human Resources Director Tami Douglas-Schatz told the Board of Supervisors this week, and all county workers have taken a pay cut in one form or another, generally by increasing their contribution to retirement plans.

The county has 2,314 employees. Of those, 2,083 are now in a bargaining unit that includes a second tier, where new employees receive generally lesser benefits than veteran employees.

The 231 remaining are with the Association of San Luis Obispo County Deputy Sheriffs, which has 138 employees, and the Probation Peace Officers Association, with 93 employees.

“We are currently bargaining with the ASLOCDS and hope to have an agreement in the near future,” Douglas-Schatz wrote in an email to The Tribune. “The Probation Peace Officers’ tier two will be addressed in successor negotiations.”

In addition, the county has been able to avoid layoffs, Douglas-Schatz wrote, although it has prepared for them during what county leaders call the “7-year pain plan.” This is year five of the budgeting and administrative approach.

Douglas-Schatz credited employees and the organization that represents most of them, the San Luis Obispo County Employees Association, for making wage concessions and, in some cases, taking a pay cut to prevent fellow workers from being laid off.

She said the last layoffs in the county occurred in 2006.

Supervisors on Tuesday lavishly praised both Douglas-Schatz and the employee unions. Jim Patterson said other counties are looking to San Luis Obispo as an example.

“The county and employee organizations have had great success negotiating second-tier pension benefits,” Douglas-Schatz said.

Under the second tier, “we have successfully rolled pension benefits back to those of 10 to 15 years ago, where employees retire with a lower benefit at a higher age,” she said.

Under a two-tier system, new employees receive less generous benefits than veteran workers, whose payouts are locked in by previous contracts. Under the new system, for example, retiree cost-of-living benefits are less generous.

The county has hired 75 employees since it began instituting its two-tier system.

The system has faced criticism for not solving pension problems in the short-term because new hires are decades away from retirement.

Nonetheless, Douglas-Schatz wrote, “depending on retirements and hiring trends, the county may experience significant cost savings in 8 to 10 years. The longer-term cost savings is 15 percent to 17 percent of payroll, which, in today’s dollars, equates to approximately $30 million annually. This savings should be realized in 20 to 30 years.”

In addition to the two-tier system, “all bargaining units are paying more toward their own pension costs,” Douglas-Schatz wrote, which is a de facto pay cut.

“When pension rates increase,” she explained, “that increase varies by bargaining unit. Employee contributions vary by age of entry into the pension plan and the bargaining unit to which they belong (which dictates benefit levels).”

“On average,” Douglas-Schatz continued, “employees have increased their contribution to the pension plan by approximately 4.5 percent in the last few years, with an average of 1.25 percent of that increase occurring in the last year.”

The county also has replaced formulaic wage increases with no wage increases or “to be negotiated” language, she wrote.

“All bargaining units have committed to $0 wage increases for at least one year, with many agreeing to multiple-year contracts with $0 wage increases,” Douglas-Schatz wrote.

“Formulaic” wage increases — automatically guaranteeing 2 percent, say, or 7 percent, or some other number — were used in earlier years to help meet the requirement of the county’s voter-approved prevailing wage ordinance.

“The county and employee organizations have been working diligently on revisiting the actual requirements of the PWO,” Douglas-Schatz wrote, “and have agreed to bargain over wages rather than rely on formulas.”

This change has a direct impact on pension costs, Douglas-Schatz wrote.

“When payroll costs rise annually, it not only contributes to the county’s structural budget deficit, but it also places a significant strain on the pension plan and increases the odds of unfunded liability,” she wrote.

“Keeping wages flat during these difficult economic times assists in maintaining the current and future health of the pension plan,” she wrote.

Douglas-Schatz wrote that in January, she will present a formal report, with updated numbers, to the Board of Supervisors on the status of its employee relations.