After more than a year of negotiations, the Berkeley Police Association and the city have tentatively reached a pension agreement to be voted upon at the Sept. 11 Berkeley City Council meeting.
The most significant changes that this agreement will include are a new two-tiered pension plan, CalPERS contributions and employee health premiums.
The memorandum of understanding, which has taken 15 months, was stalled primarily by discussion on police concessions, said City Councilmember Gordon Wozniak.
The establishment of a two-tiered system will give new police employees a pension plan different from that of existing police employees. Under the new plan, employees will receive pensions under the formula of 3 percent at age 55 based on “highest average annual compensation … during three consecutive years of employment,” the City Council report.
The city expects this two-tier system to save $1 million over 10 years.
This new pension plan comes on the heels of AB 340, the Public Employee Pension Reform Act of 2012, which drastically redefines pension plans for public employees in California. The act was passed by the Legislature on Friday but has yet to be signed by Gov. Jerry Brown.
The city does not yet know how this bill would affect current union contracts if it is made into law, said city spokesperson Mary Kay Clunies-Ross in an email.
Another major change involves adjustments to retiree health benefits. The city’s second-biggest employee-related unfunded liability, which is around $55.5 million, was the police retiree benefit, said City Auditor Ann Marie Hogan. The city will now create a Retiree Health Premium Assistance Plan.
“What this (MOU) has done is cap any future increases to that liability, so it immediately shaved $2.8 million off that liability without even going forward,” Hogan said. “There will be additional savings of $14.5 million over the next 30 years just for the police retirees.”
Under the current arrangement, the city paid for lifetime health care premiums on behalf of the police and thus bore the full brunt of any premium increases. Moreover, the money was paid directly to the retiree as taxable income, Hogan said.
Finally, the new MOU includes a cost-sharing agreement in which the police will now contribute to the employer’s share of CalPERS contributions. The police also happen to pay their entire employee CalPERS contribution rate, Hogan said.
With the new MOU, the police will be responsible for contributing 1.5 percent of employee CalPERS contributions starting July 1, 2012, to June 30, 2013, and 3 percent from July 1, 2013, to June 30, 2014.
This is estimated to save an additional $1.5 million.
The police association did not respond to requests for comment.
“I think it’s a good compromise,” Wozniak said of the MOU, which he plans to support. “It’s a step forward. I think the police association stepped up, and they agreed to some concessions which will result in some decrease in take-home pay, which is always painful, so we really appreciate that. Whether we have to do more on the long run depends on the economy.”
Jaehak Yu is the lead city government reporter. Contact him at [email protected].