06 - Laserfiche WebLink

The passage of the Public Employees' Pension Reform Act (PEPRA) in 2013 resulted in significant changes to requirements associated with member contributions. Members new to the program are required by the law to pay 10.5%, which is equivalent to 50% of the normal cost (the cost associated with the current year's earned benefits). "Classic Members", those already in the CaIPERS system, do not have this requirement. Instead, their contribution is fixed at 9%, which IAFF has been paying since 2013. PEPRA's stated goal is for the "Classic Members" to also pay 50% of the normal cost, and allows agencies, after good faith bargaining and completing the impasse procedures, to impose this provision up to a maximum of 12% in 2018. The tentative agreement reached with IAFF meets PEPRA's goal. "Classic Members" will increase payment of their member contribution by an additional 3% during the term of the contract, for a total of 12% according to the following schedule: 0.5% as soon as the contract with CALPERS is amended to allow this contribution; 0.5% in July 2015, 0.5% in July 2016, and the remaining 1.5% in July 2017. Deferred compensation: Even prior to the enactment of PEPRA, retirement specialists have advocated for a number of modifications to the current pension system. Among those changes were less costly pension formulas for the employer, and for employees to assume a greater role in saving for their retirement. At the conclusion of the last round of negotiations with IAFF in 2012, agreement was reached to implement a lower cost pension formula for newly hired "Classic Members". These employees have the 3% @ 55 formula, based on the average of the highest three years' earning, as compared to the higher cost 3%@ 50 formula, based on the single highest year's earnings, for current employees. With the passage of PEPRA effective January 2013, employees new to the CaIPERS system receive the reduced benefit of 2.7% at the retirement age of 57, based on the average of the highest three years' earnings. Given the reduced retirement benefits under PEPRA, having a mechanism to set aside additional funds for retirement provides the employees with more options to save for when they are no longer working. Municipalities have commonly offered the deferred compensation program for this purpose. The program allows employees to voluntarily contribute up to $18,000 each calendar year on a tax-deferred basis. Upon retirement, employees may draw upon these funds and are then responsible for paying the taxes owed at the time. Currently, approximately 60% of IAFF members contribute to the deferred compensation program. In addition, employers may make contributions to the deferred compensation program on behalf of the employees. These contributions serve as a lower payroll cost alternative to traditional wage adjustment as they are not subject to CaIPERS contributions, and do not impact other personnel expenses that are calculated based on salary. In July 2016, IAFF employees will receive a contribution of 0.5% towards deferred compensation. Page 3 of 5