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POA RETIREMENT ISSUE March 21, 2011 BACKGROUND; In June 2009 the City and POA agreed to a contract extension which deferred scheduled pay raises of 4% and 2.5%. In exchange for deferral of these scheduled increases, the City agreed that any employee who retired prior to 2011 would receive the scheduled pay increases, in exchange for the 4% and 2.5% those employees would take unpaid furlough hours off, equivalent in the value to the salary increases. The City submitted the MDU to CaIPERS and reported salaries In accordance with the MOU. The first POA retirement under the MOU provisions occurred in October 2009. Subsequently, 24 other POA employees (20 sworn and s non -sworn) retired without incident. in October 2010, CoIPERS contacted the City and advised there might be a problem with reportable compensation. in December 2010, PERS finally "ruled" that the 4% and 2.5% were not considered "reportable compensation." In December 2010, POA requested that these 25 employees "be made whole" by the City. in February 2011, POA requested the City pay POA $1,963,251 to create a trust, which POA would administer. STEPS TAKEN; The City asked PARS (Public Agency Retirement Services) to provide an actuarial study on the casts of such a proposal, which would be paid over a 20 -year period. Several scenarios were evaluated, including POA administering the trust itself. This scenario would require the City to provide a lump sum to POA and, therefore, it was eliminated as an option. This left the following options for consideration; Scenario 1 plan administered by PARS, includes 2% COLA and no survivor benefits.- ✓ Approximately $1,969,03.1 or approximately $94,671 per year (2011= $126,087) ✓ This scenario assumes a $5,000 all-inclusive annual administrative fee Scenario 2 plan administered by the City, includes 2% COLA and no survivor benefits; ✓ Approximately 1,989,031 or approximately $114,671 per year (2011 = $156,087 ✓ This scenario assumes a startup fee of $10,000, and ongoing annual costs of $20,000 NOTE., Cost of 4916 and 2.5% increases through CaIPERS for the 25 retirees had been gstimated to be $1,635,000 amortized over 30 years. PERS revised tills estimate to be $2,269,85. RECOMMENDATION; fi+ Contract with PARS (Public Agency Retirement Services) to create and administer a trust, on a "Pay -os -you -go" basis, in an estimated annual amount of $94,671. First year costs are estimated to be $126,087. w 25H-11