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To: A. J. Wilson, City Manager Date: June 12, 1981 From: D. E. Bott, Dir. of Personnel PROPOSED P.E.R.S. CONTRACT AMENDME SAFETY -MEMBER RETIREMENT FORMULA Subject;_ AND MILITARY SERVICE CREDIT OPTION. Included in the existing Memoranda of Understanding (M.O.U.'s) between the City and each of its three recognized employee associations, is a provision which allows the City to provide, under certain conditions, a new retirement plan for future employees involving different benefits and/or lower costs than currently exist for present employees. The option was conditioned upon (1) a change in the State Retirement Law which would permit such a change to occur, (2) a study of retirement plans which provide benefits equal to those prevailing for equally compensated employ- ees in private industry in Orange County, (3) selection of a plan meeting those criteria, and (4) notification of the Associations of the plan selected at least 60 days before the plan is instituted for employees hired after the effective date of the new plan. The first condition was met when, in January 1980, a change in the Retirement Law permitted PERS contracting agencies to provide reduced benefits for future employees. As a result of some early confusion regarding the scope of the application of the legis- lation, PERS officially notified its contracting agencies in May 1980 that the new "two- tier system affected only the optional benefits that agencies had previously adopted to improve upon the basic PERS benefit structure. Agencies could not, as they had hoped, exclude their future employees only from their PERS contracts as a means of providing reduced benefits for such employees. The City of Santa Ana's contract with PERS included only two (2) such options. One, allowing PERS service credit for up to four (4) years military service and available to all current employees, could be terminated. The other, providing the 2% at Age 50 service retirement formula for Safety members, could only be reduced to the lesser 2% at 55 formula. The second condition was met when Council received the results of the comparative study of the benefits and relative costs of retirement plans in a representative sample of private sector employers in Orange County. The study, conducted at Coun- cil's direction by the accounting/actuarial consulting firm of Coopers & Lybrand, provided the necessary basis for Council to select an alternate plan for future employees. That selection, however, was limited to only one alternative. The new PERS two-tier system did not permit contracting agencies to exclude, new employees only from the PERS system and the City's agreement with the employee associations did not grant the City the right to withdraw existing employees from PERS and trans- fer them to a private plan. Therefore, the City was limited to reducing the two optional benefits included in its PERS contract. On April 9, 1980, Council author- ized PERS to develop an actuarial valuation study as the legally required first step toward implementing that change. Thus, the third condition was met. The remaining condition of notifying the employee associations to explain the proposed retirement plan modifications in advance of their implementation has already been satisfied. The Associations were notified of Council's proposed action on April 9th and each has acknowledged their understanding of the intent and meaning of the change. The PERS contract amendment process is highly structured and very time-consuming. It normally takes nine months to a year to effect a single amendment. Because the City of Santa Ana did not initiate the process until February 18, 1981, the System has been giving us expedited service so that we may be able to complete the necessary K