The Pleasanton City Council is likely to ratify a new three-year agreement Tuesday with the union representing 220 regular city employees that will raise individual pension contributions and reduce floating holiday hours while also granting a modest wage increases over the life of the new contract, the first pay increase these employees have had in three years. Overall, the new agreement conforms to sweeping pension changes that are already in place for unionized police and firefighters and those made last year by Governor Jerry Brown that reformed pension benefits for public employees hired after last Jan. 1. That change raised the retirement ages from 55 to 67 and trims their pension benefit from 2.7% to 2.5%. Additionally, for those employees hired after Jan 1, the city changed retirement medical benefits from two-party coverage to one-party coverage, with an additional sunset at age 65 when the employee becomes eligible for Medicare. These changes move the city closer to long-term pension sustainability as "legacy" employees eligible for benefits under the pre-2013 plan retire from the system.
It's not a perfect solution to the city's concern of unfunded liability for both the California Public Employees Retirement System (CalPERS) and retiree medical benefits that total $131 million or $162 million depending on the formula used. The $131 million follows the required reporting for accounting purposes in accordance with the Government Accounting Standards Board (GASB) and the $162 million is based on the market value of the assets. But it continues the City Council's recognition of the growing pension problem caused by both overly generous benefit awards by councils in the 1980s and an overly optimistic CalPERS that pegged its assets on every-increasing interest rates and assets. The 2008-09 stock market collapse and housing bust exposed the structural vulnerabilities of California's public pension systems and the risky political behaviors that led to the growing retirement obligations for the state and local governments, including Pleasanton's, the scale of which are now recognized and being addressed.
Pension benefits promised to retirees are irrevocable, as are the promised benefits that current workers have accrued since their employment began. So employees should be credited with agreeing to boost their individual pension contributions. Doing nothing could cost public employees everything since a pension cannot grow without a job attached to it. Although Pleasanton continues to be fiscally strong with sizable reserves, other cities are already seeing diminishing resources as their pension costs soar. The Little Hoover Commission in its study of California public pension systems warned that government budgets are being cut while pension costs continue to rise and squeeze other priorities.
Arguably, some will say that Pleasanton is not doing enough to reduce its unfunded pension obligation. But with city employees contributing a full 8% of their wages starting Dec. 31 and police and firefighters agreeing to contribute 9%, the city is moving in the right direction toward a retirement system that, coupled with reduced obligations for new employees, can eventually be sustainable. Much also depends on CalPERS and its ability to make realistic assumptions and a state legislature that will hold the line on pension formulas now in place to trim both payroll growth and continue the two-tiered pension reforms both Pleasanton and the governor have made.