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is an expectation that this will go to 4.7%. The 9%, if paid, has an additional cost of 3% of pay. So, even though the 24.1% is in the CaIPERS valuation, the total contribution as a percentage of base pay is 36.1% of pay. Mr. Bartel outlined 4 potential scenarios for Council consideration: 1) Establish a second tier and the City will continue to pay 9% member contribution and will save 4.4% of tier 2 payroll; 2) The City pays the member contributions but gradually phases out the payment of the 9% as the City's contribution rate is going up for both tier 1 and tier 2; 3) Phase-out of the 9% for tier 1, but no member contribution being paid by the City for tier 2, which results in an immediate savings in tier 2; and 4) What would happen if the City did not pay immediately any of the member contribution. He noted that if the City is thinking of putting in a second tier only and is doing it for budget reasons to save money, the City will not save much and will not save noticeably for some amount of time. City Manager Fialho thanked Mr. Bartel who he said has 30 years of actuarial services. He has been an impartial contributor to a number of pension discussions. Regarding the policy aspects of the discussion, Mr. Fialho stated the Council adopted a new Work Plan for the coming two fiscal years. One element of the plan calls for fiscal policies and reform strategies to address the City's unfunded liabilities. Much of the information is on the City's website and it has been distributed with the staff report. He referred to the League of California Cities Pension Reform Action Plan which was approved unanimously by the League Board of Directors in July 2011. It was designed as a strategic goal related to pension reform for local governments and what the State can do legislatively and through policy discussions. The document identifies what can be done locally through the collective bargaining process and what needs to be happening at the state level and what local government can do to help shape those policy discussions. Mr. Fialho said the endorsement of this policy would be consistent with the Council's policy objective of identifying short and long term reform initiatives for pensions locally and statewide. If endorsed, the Council can also consider benchmarks for measuring its progress over a specified period of time. The staff report suggests annual 5 year benchmarks. Staff has identified 3 benchmarks which include 1) eliminating negative amortization, or principal and interest payments, and adjusting contributions so the City is making progress in getting ahead of the costs associated with employer rates; 2) reducing the City's unfunded liabilities by a minimum of 10%; and 3) reducing personnel related cost as a percentage of payroll to about 70% of the operating budget. It is currently at 78% and was at 79%. Historically from 1995, the City has averaged in the 72% range. Mr. Fialho suggested the public read the League's Pension Paper and noted costs can be contained by having employees assume the full share of the Employer Paid Member Contribution, implement lower tiers for new hires, and require that final retirement allowances for retirees be based on more than just one year. The second step calls for the State to restore some fiscal sustainability through policy and legislative efforts. Some examples in the document on how to accomplish this is by repealing SB 400 and AB 616 which gave rise to the enhanced benefit formulas; prohibit enhanced formulas for 20 years; eliminate the availability of City-paid/employer-paid member contributions statewide; and provide employers with another option of a combination of a 401 K style deferred contribution plan with a lower risk management defined benefit plan. He said the adoption of this document, along with the benchmarks would be in compliance with the work plan. It could serve as a framework and provide useful benchmarks to evaluate progress. The Council could adopt the document with some local amendments, hold it over for two weeks, do nothing, receive public input, and wait for the outcome of negotiations with the Police Officers Association. At the request of Mayor Hosterman, Mr. Fialho and Mr. Bartel expanded on the three benchmarks: 1. Eliminate negative amortization — Mr. Bartel said currently, the City's amortization periods are longer than 20 years. For CaIPERS' calculations, if the City gets to an amortization period shorter than 20 years, it eliminates negative amortization. Like a home mortgage, the shorter the amortization period, the higher the payment is. City Council Minutes Page 9 of 18 August 16,2011