Port Hueneme is exploring hiring an outside firm to help the city better manage its ballooning pension costs.
In five years, Port Hueneme’s pension costs are expected to nearly double from $2.5 million this year to $4.8 million, according to state actuarial reports and the firm. That’s a big jump for a city already using reserves to balance the 2017-18 budget and eyeing a tax increase for 2018.
The City Council on Tuesday will hear a presentation by Public Agency Retirement Services (PARS), which will pitch its program. The company offers an option to create a trust to pay for pensions, retiree health costs or both.
Read more: Facing large bills, public agencies work to rein in retiree health costs
The PARS Pension Rate Stabilization Program offers a number of benefits, according to the presentation the firm will give Tuesday night. It helps address unfunded accrued liabilities (money owed employees for work already completed), allows the city to more aggressively play the stock market — cities are limited in the types of investment they can make — and credit rating agencies look at it more favorably.
It also takes control out of Sacramento.
“The argument is, it’s local control of those funds and local control over the investment of the funds,” City Manager Rod Butler said. “In CalPERS, it goes into their general pre-funding account and you lose the ability to make money and invest that money.”
CalPERS is the California Public Employees’ Retirement System, which pays out Port Hueneme’s retiree benefits and those of other public agency and state employees.
Port Hueneme. (Photo: STAR FILE PHOTO)
It’s not clear whether PARS would make Port Hueneme more money and therefore alleviate some of the cost to taxpayers. Butler said that in some years, PARS has done better than CalPERS and other years, worse. Port Hueneme would pay PARS another fee to manage the account on top of what it already pays CalPERS.
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Why city retiree costs will jump so significantly has mostly to do with generous employee benefits past officials negotiated. The city’s police union members hired before 2013 receive a “3 at 50,” meaning they get 3 percent credit for each year they worked and can retire as early as age 50.
That means a 30-year veteran can earn 90 percent of their highest-earning year in retirement. A pensionable income of $150,000, then, is a pension of $135,000.
Retirees in Port Hueneme also get Social Security on top of their pension and health benefits.
Butler said the city’s retiree health benefits are not the biggest concern, because over time the city has reduced those benefits.
Not everyone likes the idea of prefunding or creating another account to pay for retiree costs. Critics say it’s essentially creating another pension system, as dependent on the market as CalPERS.
CalPERS recently downgraded its expectations on how the market will perform, from 7.5 percent to 7 percent. That’s causing cities to pitch in significantly more. When the market underperforms, taxpayers pick up the difference.
In a report released by the Manhattan Institute, authors Stephen Eide and Daniel DiSalvo recommend phasing out what are known as OPEBs (other post-employment benefits), noting that fewer and fewer private sector employees receive the benefit.
Read the report here.
Instead, employers should instead offer modest wage increases, which make compensation packages less backloaded and allow for far greater transparency, Eide recently told The Star.
Butler said no decision will be made Tuesday. If the council decides to join PARS, it will direct staff to return with an agreement at a later date.
Also at the meeting, the council will vote to name an interim deputy city manager to succeed Carmen Nichols, who left last month.
Stephanie Mendenhall retired in July 2015 as the city of Upland’s director of administrative services. She and Butler worked together there.
As a public retiree collecting a pension, Mendenhall can hold the position up to 960 hours in a fiscal year. She would be paid $73.18 per hour for a total of roughly $70,000, under the proposed contract.
Butler said he hopes the city will by that time be in a position to hire someone permanently for the position.
Tuesday’s meeting will start at 6:30 p.m. at City Hall, 250 N. Ventura Road. The full agenda is here.
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