When San Luis Obispo starts negotiating employee contracts that begin to expire at the end of the year, the process will be in stark contrast to 2012 when salaries and benefits were cut 6.8 percent.
The City Council recently set general parameters for negotiating with employee groups: Maintain a balanced budget, continue to share the cost of health benefits with employees, provide competitive pay to attract and keep workers, and continue to make progress on containing pension costs.
Soon, in closed session out of the public eye, council members will give more specific direction to its staff, including how much money they are willing to spend on salary increases.
Talk of possible pay increases is a turnaround from two years ago when the council told the staff to significantly cut employee compensation. While salaries may get a reprieve this time, employees may be asked to pay a larger portion of retirement costs.
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At the same time, a tiered pension system that voters approved in 2011, plus a state-mandated change in 2013 are expected to eventually lower city costs by paying out smaller pensions.
Here’s what’s at issue:
All employees now pay their entire retirement contribution; prior to the current contracts the city paid for part of the employee share as well as the employer contribution.
Now, the city may negotiate to have employees also pay a portion of the employer contribution as a way to save costs and free up funds to pay down unfunded liabilities.
The Police Officer’s Association already pays 3 percent of the city’s share of pensions costs. This is where employee pension benefits stand now:
The city has 361 employees that fall into one of five employee groups — four of those groups have negotiated compensation agreements with the city. They fall into three pension tiers.
The majority of those employees, about 86 percent, fall into the first tier because they were already working for the city when the tier system was instituted.
General employees in the first tier qualify to retire at age 55 with an annual pension of 2.7 percent of their highest base salary, multiplied by the number of years they worked.
For example, an employee who worked for 25 years with peak annual earnings of $100,000 would receive $67,500 per year in retirement.
Police and fire employees in that first tier receive a more generous pension: 3 percent at age 50.
In 2011, San Luis Obispo voters passed a ballot measure that paved the way for the city to create a tiered pension program to reduce the amount of benefits offered to new employees.
The city estimated at the time that the two-tiered plan for new employees would save more than $100,000 by the third year after its implementation and up to $500,000 annually within a decade.
The second tier went into effect in December 2012 for new employees; there are now 25 employees in that tier.
Under that pension formula general employees receive 2 percent at age 60; fire employees get 3 percent at age 55; police officers get 2 percent at age 50.
In January 2013, the state implemented a third tier for people hired after that date, reducing those pension benefits even more.
Today, there are 27 employees in that third category. Those employees will receive 2 percent at age 62, while police and fire employees get 2.7 percent at age 57.
The contract with the city's largest employee union, the San Luis Obispo City Employees Association, which has 152 employees, expires Dec. 31, followed by the Police Staff Officers Association in June 2015, and the fire union and the remaining police employees in December 2015.