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Council Confronts Glum Report on Pensions, Compensation By MATTHEW ARTZ

Friday February 11, 2005

Barring a sustained surge in the stock market, city leaders said Tuesday that Berkeley’s employee pension fund will continue to drain the city’s budget. 

“The outlook is pretty dim,” City Manager Phil Kamlarz said at Tuesday’s City Council meeting. 

CalPERS, the state retirement system, is closely tied to Wall Street, and when stocks tanked four years ago, Berkeley’s contributions to its employees’ pension funds soared to make up the difference. For police officers, Berkeley went from paying CalPERS four percent of the officers’ base salary in 2001 to a projected 40 percent this year. The price of pension contributions for non-uniform employees has jumped from nothing in 2001 to 17 percent of base pay this year. 

In all, the city estimates it has lost $78 million from the stock collapse, said David Hodgkins, the acting director of human resources. 

This past year, CalPERS netted a 16 percent gain, but that alone won’t be enough to reduce the city’s pension costs, according to a city actuarial report. Assuming that CalPERS meets its expectations of a 7.75 percent investment return through 2011, Berkeley will have to pay CalPERS about 15 percent of wages for each non-uniformed employee, 40 percent for police and 28 percent for firefighters. 

“We can deal with a cost of around 10 to 15 percent,” Hodgkins said. “But when it gets to 30 percent, it’s devastating.” 

Historically, Berkeley faced similarly high rates in the early and mid 1980s. By the 1990s the city’s pension contributions averaged 13 percent of wages for all employees. 

“It will take years of double digit returns to reduce employers contribution rates,” CalPERS spokesperson Darren Hall said Thursday. He said to smoothe the rates which employers pay, CalPERS is spreading this year’s gains over several years. 

Contribution rates which the city pays police and fire department employees have soared, Kamlarz said, in part, because of improved benefits the city offered them in their latest contract allowing them to retire at age 50 with an annual pension equal to a percentage of their highest salary, calculated by multiplying three percentage points by number of years worked. At the time when the state retirement system was well funded, Kamlarz said, CalPERS approved the new retirement deal the city made. 

“They were saying our contribution rates would be zero for 30 years and if we took the new benefit they would be zero for 20 years,” Kamlarz said. With a surge of early retirements for safety officers stemming from the new benefit package, CalPERS raised the city’s rates.  

Numerous cities find themselves in the same bind as Berkeley, although several comparable cities are paying somewhat lower rates, according to CalPERS. While in 2004 Berkeley faced rates of 12.6 percent for non-uniform employees, 40 percent for police and 25 percent for fire; Palo Alto paid 6.44 percent for non-uniform, 21 percent for police and 33 percent for fire; Davis spent 3 percent for non-uniform, 20 percent for police and 22 percent for fire; and Santa Cruz paid 10 percent for non-uniform, 31 percent for police and 39 percent for fire. 

How to compensate for past mistakes was the crux of Tuesday’s meeting. A report from city staff showed that Berkeley has $157 million in unfunded liabilities—obligations which the city doesn’t have enough cash in the bank to cover if they came due all at once. 

In a typical year, payout of unfunded liabilities comprises between $20 to $30 million of the city’s budget Kamlarz said. 

Last year the city paid $1.6 million out of its general fund to 87 disabled former employees who had registered for the now discontinued Supplemental Retirement Income Plan. Established in 1983 as a benefit option to withdraw the city from Social Security, SRIP included a disability benefit that city leaders said gave employees a “huge incentive” to claim disability.  

Under the plan, which was discontinued in 1988, city employees who qualified for a disability benefit, received a monthly benefit equal to 60 percent of the highest average salary until death. Employees contributed $324 a year to the plan—not nearly enough to cover the long-term costs, Kamlarz said. 

In more welcome news, the council praised staff for reducing the number of hours and money lost to workers compensation claims. Last year, Berkeley lost 46.7 days due to injury down from 89.5 days the year before. 

“There’s really been a dramatic improvement,” said Councilmember Gordon Wozniak. 

Councilmembers, however, questioned why over the past three years 132 employees filed three or more claims apiece. 

As part of its effort to reduce claims, the city and several unions have agreed on a program to give union employees $535 apiece if their union meets goals for reducing claims. Hodgkins said at the current rate of injury claims affected employees appear set to win the bonus. 


Casino Resolution 

With local television news crews filming, councilmembers took turns blasting casinos as they passed a resolution opposing the gaming industry moving into the Bay Area, specifically targeting a proposed mega-casino in San Pablo. 

The only member not to support the resolution was Councilmember Kriss Worthington, who abstained on the grounds that opposing any casino in the Bay Area was too wide-ranging a statement.