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HomeMy WebLinkAboutCM City Retirees; Elected Officials DisincentiveCITY OF Agenda Item No: 6.c 1 Meeting Date: November 19, 2012 Department: Management Services Prepared by: Anil Comelo, Human City Manager Approval:/ Resources Director SUBJECT: RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN RAFAEL AUTHORIZING A BENEFIT TO REMOVE THE DISINCENTIVE FOR CITY RETIREES TO SERVE AS AN ELECTED CITY OFFICIAL RECOMMENDATION: Consider adopting the attached Resolution authorizing the granting of a new benefit to the office of Mayor and City Council member that will eliminate the current disadvantage for City retirees returning to serve as the Mayor or member of the City Council. BACKGROUND: The City of San Rafael provides pension and health insurance benefits to its retiring employees and elected officials who meet minimum vesting requirements. Now that the City has adopted multiple pension tiers and multiple categories for retiree health coverage, the level of benefits to which a City employee or elected official is entitled upon retirement will be determined in part by the employee or official's hire date as well as by his or her retirement date. Mayor Phillips served three consecutive terms on the City Council between February 13, 1995 and December 3, 2007. He retired from the City, receiving pension and retiree medical benefits, and he has now returned to elected office in San Rafael. This return to office has made it evident that the City's change in retirement benefits, particularly the lower retiree health benefits, has created a dilemma, described in detail below, for retired employees and elected officials like the Mayor who may wish to return to City service. There are approximately 700 individuals in addition to Mayor Phillips, both currently retired City employees and current City employees who will be retiring in the future, who could be impacted adversely if they were to be elected or appointed to the office of Mayor or City Council after retirement from the City. Accordingly, with the concurrence of the City Council at its June 18, 2012 meeting, Mayor Phillips asked staff to study the issue and make a recommendation to the Council concerning this matter. ANALYSIS: The Marin County Employees Retirement Association ("MCERA") is a retirement system established pursuant to the County Employees' Retirement Law of 1937 ("the '37 Act"), San Rafael is one of a very small percentage of California cities which participate in public employee retirement systems established under the '37 Act. Most other cities participate in the California File No: 1, 1 /Coon it Meeung Disposifion SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 2 Public Employees Retirement System ("CalPERS"). The City's retiree health benefits program is not governed by the '37 Act, but rather by the State Public Employees' Medical and Health Care Act ("PEMHCA"). General Rule for City Retiree Returning to Full -Time Employment with City: Under the '37 Act, an employee or official who is retired from the City and is receiving pension and retiree health benefits cannot return to paid City service on a full-time basis while continuing to receive his or her retirement benefits. This rule applies not only to retirees returning as regular full-time employees, but also to retirees returning to serve as Mayor or City Council members because, while elected officials do not receive full-time salary, they are deemed to be full-time employees under the City's personnel regulations. To earn salary as a full-time employee, such a returning retiree must "unretire" from MCERA and stop receiving his or her previously vested pension and retiree health benefits, working instead as a paid current employee who has reinstated as an active member of MCERA. As a current employee, he or she will earn additional service credits until re -retirement, albeit at the lower pension benefit tier that is now in effect. Upon re -retirement, the employee or official will earn his or her previous pension amount, plus additional benefit amount attributable to the new period of service. However, with respect to retiree health benefits, the effect of "unretiring" is more significant. Under the City's MOU's and resolutions, when the employee "re -retires" he or she will no longer be entitled to retiree health benefits at the level previously earned. Now that the City has adopted new lower retiree health benefits, upon the employee/official's re -retirement those lower benefits would become applicable. This is a substantial change since retiree health benefits are now available to new employees only at a much lower level than was previously offered to City retirees; therefore, this circumstance will likely serve as a significant disincentive for a City retiree to return to work as a regular full-time City employee. Alternatives for City Retiree Returning to Service as Mayor or City Council Member: For a City retiree who wishes to return to City service by election or appointment to the office of Mayor or City Council member, however, there are two other options available: First, since an individual elected as Mayor or to the City Council can choose to serve without any compensation, the rule cited above would not prevent a retiree from serving while maintaining his or her retirement status, so long as he or she agreed to forego any salary for the office, currently $702 per month for the office of Mayor and $468 per month for the office of Council member (not including the Council's 5% voluntary reduction in place since April 2009), If the returning retiree agrees to waive salary, he or she will continue to be retired in the MCERA and PEMHCA systems, and will continue to receive his or her vested pension and retiree health benefits while in office with no change in benefit levels. A second option for a retiree returning to serve as Mayor or Council member would be to choose to accept the salary for serving in office, but to opt not to reinstate as an active member of the MCERA system. (This is an option not permitted to retirees returning to work as regular full-time City employees.) The '37 Act rule cited above would permit the retiree in this case merely to suspend his or her pension (and consequently retiree health) benefits during his or her term of office; however those benefits will resume again at the same level when the term of office concludes. The problem with this option, however, is that while the retiree's retirement health benefits are suspended during the term of office, he or she also cannot receive health benefits from the City SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 3 as a current employee while in office, since PEMHCA law only allows payment of such health care benefits to an employee who is "participating in an employer-provided retirement program." Consequently, under this scenario, the returning retiree will not receive either retiree health benefits or current employee health care coverage while in office, and would have to incur significant expense independently to purchase new health care coverage. In short, a retiree returning as Mayor or new Council member would need to waive any salary in order to retain his or her vested retiree health benefits upon re -retirement; or to receive salary, would need to suspend retiree pension and health benefits and additionally to forego any right to City -provided health care benefits while serving in office. For a retired City employee or official returning to public office like Mayor Phillips and others similarly situated, who retired with vested rights to a significantly higher retiree health benefit than they can obtain if they re-enter City service at present, the decision to re-enter City service thus comes with a hefty price tag. Consequently, the combined provisions of the '37 Act and PEMHCA law, in conjunction with the City's adoption of multiple retirement benefit tiers and programs, have the undesired result that affected retirees will be strongly disinclined to run for City Council or Mayor. It is worth noting that the '37 Act restriction on returning to service is not imposed upon Marin County retirees subsequently elected to County office such as the Board of Supervisors; County retirees may continue to receive retirement benefits while also receiving compensation for current service, pursuant to an express exception in the '37 Act. Nor is this restriction imposed on retirees in the CalPERS system, in which most California cities participate. Recommendation: Staff believes there should not be a financial disincentive to serving as an elected official, and that the requirements of the '37 Act and PEMHCA law, in connection with the City's changes in retirement benefits, may dissuade good candidates in the future. Therefore, staff has researched whether it would be possible to eliminate this disincentive, and has concluded that the City could do so by providing the offices of Mayor and City Council with a nominal additional non-MCERA retirement benefit, such as the 3% PARS retirement benefit the City currently offers to managers and mid -managers. Under applicable laws, this would allow the returning retiree to serve in office without "unretiring" and reinstituting to active service in MCERA, but still to be "participating" in an employer-provided retirement plan and thus allowed health care benefits as a current employee while in office. The result would be that a retiree returning to serve as Mayor or City Council member could suspend his or her retirement and retiree health care benefits without losing them entirely, while still receiving compensation and current health care coverage the City provides to these offices. Accordingly, the attached Resolution would grant to the offices of Mayor and City Council member, effective January 1, 2012, an additional retirement benefit already provided to the City's managers and mid -managers, namely, a City contribution to the PARS retirement plan in a sum equal to three percent (3%) of salary, FISCAL IMPACT: This additional benefit would amount to $21 .06 dollars per month for the office of Mayor and $14,04 per month for the office of City Council member, for a total of $926,64 per year. It should be noted that the established salaries for the office of Mayor and City Councilmember cannot be decreased (or increased) during the term of a sitting official. However, an official may voluntarily waive some or all of his or her salary, SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 4 Adopt the Resolution granting an additional PARS retirement benefit. Request further information. Reject the staff recommendation and maintain the status quo. ACTION REQUIRED: Adopt Resolution as presented. ATTACHMENTS: Resolution RESOLUTION 13465 RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN RAFAEL AUTHORIZING A BENEFIT TO REMOVE THE DISINCENTIVE FOR CITY RETIREES TO SERVE AS AN ELECTED CITY OFFICIAL WHEREAS, since the City of San Rafael has adopted multiple pension tiers and multiple categories for retiree health care coverage, the level of benefits to which a City employee or elected official is entitled upon retirement is now determined in part by the employee or official's hire date as well as by his or her retirement date; and WHEREAS, the City participates in the Marin County Employees' Retirement Association ("MCERA"), a retirement system formed under the County Employees' Retirement Law of 1937 ("the '37 Act"); and WHEREAS, the '37 Act generally prohibits retirees from returning to full-time employment with a participating agency while simultaneously receiving retirement benefits; and WHEREAS, due to this prohibition and applicable City compensation rules, the unintended consequence of the City's new retirement tiers is that some City retirees returning to City service as an elected or appointed Mayor or City Council member --deemed by the City to be full-time employment positions --must agree not to participate actively in MCERA while receiving compensation for serving in office, or must give up their right to compensation and serve in office strictly as an unpaid volunteer, in order to avoid a significant diminution and/or loss of their vested pension and/or retiree health care benefits; and WHEREAS, if a returning retiree does choose not to participate actively in MCERA so as to merely suspend, but not lose, his or her vested pension and retiree health care benefits, then that individual also cannot receive employee health care benefits from the City while in office, since the State Public Employees' Medical and Health Care Act ("PEMHCA"), which governs the City's provision of health care benefits to its employees, also prohibits the City from providing employee health care coverage to a City employee or official who is not participating in an employer-provided retirement plan; and WHEREAS, the combined effect of the foregoing laws and rules is to penalize certain retirees substantially for their willingness to return to serve the City as elected or appointed Mayor or City Council member; and WHEREAS, this disincentive can be mitigated where a retiree returning to serve as Mayor or City Council member chooses not to participate actively in MCERA, as PEMHCA would nevertheless allow the City to provide current employee health care benefits to such person while in office if the City were to contribute even a minimal amount towards another qualified retirement program for that individual, such as the PARS retirement program; and WHEREAS, the '37 Act restriction on returning to service is not imposed upon County retirees who are subsequently elected to County office, who may continue to receive retirement benefits while also receiving compensation for current service, pursuant to an express exception in the '37 Act; nor is this restriction imposed on retirees in the California Public Employees' Retirement System ("CalPERS"), in which most California cities participate; and WHEREAS, there are approximately 700 individuals, both currently retired City employees/elected officials and current City employees/elected officials who will be retiring in the future, who could be impacted adversely if they were to be elected or appointed to City office after retirement from the City; and WHEREAS, the City Council finds that there should not be a financial disincentive to serving as an elected or appointed Mayor or City Council member in San Rafael, and that the requirements of the '37 Act and PEMHCA, in connection with the City's changes in retirement benefits, may dissuade good candidates in the future; and WHEREAS, the City already provides to its management and mid -management employees an additional retirement benefit, namely, a City contribution to the PARS retirement plan in a sum equal to three percent (3%) of salary; and WHEREAS, granting this same relatively small benefit to the offices of Mayor and City Council member, with an estimated total annual cost to the City of $927.00, would allow a retiree returning to service as Mayor or City Council member to suspend his or her retirement and retiree health care benefits without losing them entirely, while still receiving the standard compensation and current health care coverage the City provides to these offices; and therefore would negate the unfair and disparate impacts otherwise incurred by retirees returning to serve in these offices and eliminate the financial disincentive to serve the City in this capacity; NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of San Rafael hereby grants to the offices of Mayor and City Council member, effective January 1, 2012, an additional retirement benefit, namely, a City contribution to the PARS retirement plan in a sum equal to three percent (3%) of salary. 1, Esther C. Beirne, Clerk of the City of San Rafael, hereby certify that the foregoing Resolution was duly and regularly introduced and adopted at a regular meeting of the City Council of the City of San Rafael, held on Monday, the 19th of November 2012, by the following vote, to wit: AYES: Councilmembers: Connolly, Heller, Levine, McCullough & Mayor Phillips NOES: Councilmembers: None ABSENT: Councilmembers: None -tjE_s!th`erC. B �irne, �Ciity �Ierk CITY OF SAN RAFAEL INSTRUCTIONS: USE THIS FORM WITH EACH SUBMITTAL OF A CONTRACT, AGREEMENT, ORDINANCE OR RESOLUTION BEFORE APPROVAL BY COUNCIL / AGENCY. SRRA / SRCC AGENDA ITEM NO. 6.c DATE OF MEETING: November 19, 2012 FROM: Anil Comelo, Human Resources Director DEPARTMENT: Human Resources / Management Services DATE: November 8, 2012 TITLE OF DOCUMENT: RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN RAFAEL AUTHORIZING A BENEFIT TO REMOVE THE DISINCENTIVE FOR CITY RETIREES TO SERVE AS AN ELECTED CITY OFFICIAL epartment Head (signature) (LOWER HALF OF FORM FOR APPROVALS ONLY) APPROVED AS COUNCIL / AGENCY APPROVED AS TO FORM: AGENDA ITEM: j / ;1 City Manager (signature) City Attorney (signature) NOT APPROVED N. a X"TA5 a