TO:
VIA:
FROM:
DATE:
Placentia Cit Council
CITY COUNCIL
CITY ADMINISTRATOR
DIRECTOR OF HUMAN RESOURCES
FEBRUARY 6, 2024
AGENDA REPORT
SUBJECT: REVISE THE DEFINED CONTRIBUTION PLAN FOR DESIGNATED MISCELLANEOUS EMPLOYEES PARTICIPATING IN THE 2.0% AT 60 OR
2.0% AT 62 RETIREMENT FORMULA UNDER CALPERS
FISCAL
IMPACT: $35,000 in one lump sum. Ongoing Annual increase of $14,000 for the entire program.
SUMMARY:
Over the past several years the City has worked with the City Council and employees to control various Tong -term liabilities, including pension costs. In an effort to proactively control future pension costs for new employees in the miscellaneous category (non -sworn personnel), in April 2012 the City Council approved a second retirement tier for new employees ("2nd Tier"). The purpose of this new tier was to lower the retirement benefit for new employees who had not previously worked for a CaIPERS agency ("New Employees") from 2%@55 to 2%@60, thereby reducing the City's long-term pension costs. In addition, the intent behind the 2nd Tier was to not affect the retirement benefit for employees being hired by Placentia from another CaIPERS member agency ("Classic Employees") at the 2%@55 formula.
Shortly thereafter the Public Employees' Pension Reform Act was implemented which created a new tier for new CaIPERS members and a tier for current CaIPERS members being hired from another CaIPERS agency (collectively "PEPRA"). The City and CaIPERS did not agree on the interpretation of the City's retirement formulas after PEPRA implementation. CaIPERS has held that the City's retirement formulas are as follows: 1) Classic Employees hired before April of 2012 fall under the Classic formula of 2%@55; 2) CaIPERS members hired by the City after April 2012 fall under the 2nd Tier formula of 2%@60; 3) New Employees who are new members under CaIPERS fall under PEPRA, which is 2%@62. Based upon said interpretation, the City has had to adjust its Classic Employees formula for those hired after April 2012 to the 2nd Tier formula of 2%@60 thus lowering the retirement that had originally been advertised and agreed to by the City and employees. In addition, the immediate unintended impact of this interpretation was the ability to recruit quality, experienced Public Agency employees who now fall under the 2nd Tier, rather than the Classic formula.
In 2016, the City entered into an agreement with Public Agency Retirement Services (PARS) to provide a defined contribution plan for those designated miscellaneous employees participating in the City's second tier retirement formula of 2.0% at 60 who were hired under the promise of the 1 .e.
Feb 06, 2024
City Council Agenda
February 6, 2024
classic 2%@55 formula. The purpose of the initial implementation was to offset the effects of the Public Employees' Pension Reform Act and bridge the difference between the two formulas for those employees that were hired under this scenario. Later, the plan was revised to also include this retirement defined contribution to include positions that were difficult to fill due to the 2nd Tier formula. Lastly, in 2019 the City revised this plan to include a Tier for PEPRA Executive Directors who were being treated differently than other Executive Directors who were receiving a lesser pension contribution than their counterparts in the Tier II or Tier I formulas.
Since the City previously worked with Shuster Advisory Group, LLC (Shuster) to review fees and investment options for the City's other defined contribution plans like Mission Square 457(b) deferred compensation and the 401(a) Fire retirement plans, Staff retained their services to also review this program and recommended transfer from PARS to Mission Square. The City Council has already approved the termination of PARS and transfer to Mission Square on November 21, 2023, Resolution R-2023-89. Staff has taken the opportunity to review the plan's agreement, intent, and eligibility.
RECOMMENDATION:
It is recommended that the City Council take the following action:
Approve a revised Defined Contribution Plan administered by Mission Square Retirement Solutions (Mission Square).
STRATEGIC PLAN STATEMENT:
This item is consistent with the City Council approved 5 -Year Strategic Goal #7 to Enhance Employee Development, under Objective #1, which is bolster ranks of city employees. This is a benefit, and recruitment and retention tool to keep stability in our Executive Director ranks.
DISCUSSION:
In 2022, the City hired the consultant Shuster Advisory Group, LLC (Shuster) to review all the City's investment plans including our 115 Trust, 457(b) deferred compensation, and the 401(a) Fire retirement plans. As a part of the consultant's review, one of the recommendations was an overall consolidation of our administration of these plans to achieve lower plan fees, competitive earnings, and ease of administration of these programs. Moving this plan from PARS to Mission Square meets this goal.
As we transitioned the plan to Mission Square, the City reviewed the plan's intent, eligible participants and cleaned up the language to meet the intent of the plan.
The program has three defined tiers:
• Tier I — employees who were hired for positions that were mistakenly advertised under the City's classic retirement formula of 2.0%@55. An annual actuarial review of the plan's performance is required to ensure plan goals. Annually, a lump sum will be deposited into each participant's account under this tier. No new members will be eligible for this plan.
City Council Agenda
February 6, 2024
• Tier II — employees who were hired into difficult to recruit for positions who fell into the City's 2nd Tier 2.0%@60 formula to attract and retain. Active members will be grandfathered in at the agreed contribution rate of 7.0% of base pay and clean up language defining eligible participants and decrease new participant contribution rate to 4.0% of base pay.
Deposits are made bi-weekly through payroll.
• Tier III — Executive Directors hired under the PEPRA 2.0%@62 formula to create equity among the Executive Team regarding retirement contributions. Clean up language defining eligible participants and increase contribution rate from 2.72% of base pay to 4.0% of base pay. Deposits are made bi-weekly through payroll.
• Future eligibility of this plan will only include executive miscellaneous employees.
As a part of the cleanup of the program, Staff will work with the City Attorney's Office to incorporate this program into a new or amended employment agreement for those affected participants.
FISCAL IMPACT:
The initial lump sum adjustment totals approximately $35,000 which would be paid through a contribution to Mission Square. Total annual increased costs for this program is approximately $14,000.
Pre
red- •y: Reviewed and approved:
Alice Burnett
Director of Human Resources
Reviewed and approved:
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Rosanna Ramirez
Deputy City Administrator
Attachment:
1. Agreement
1.rWa.,.
Jennifer Lampman
Director of Finance
Reviewed and approved:
Damien R. Arrula
City Administrator