The contract is similar in its most controversial aspects to the recently approved Eagles contract. Employees received a significant pension increase, but will have to contribute to the cost. At the same time, new employees will receive significant cuts in their health care benefit at retirement.
Last Thursday, SEIU members resoundingly endorsed the new contract in a 101-2 vote. In a special meeting Monday, the City Council approved the contract in a 5-1 vote, with retiring member Greg Perry voting against.
"We didn't get exactly what we wanted but it's close enough," said SEIU chapter chair Richard Ames. "It's like being pregnant for nine months. It is time to deliver the baby."
The pension increase, which doesn't take effect until July 2007, will cost the city $4.2 million over 20 years, but officials said $1.4 million of that will come from a city pension reserve. Employees will also pay a chunk of the pension increase. By 2009, employees will have contributed $819,000, while the city contributes only $280,000 in the same time frame.
Council member Greg Perry voted against the contract in the last council meeting of his term, saying he could not support "a $4.2 million gift" — in the form of pension benefits and cost-of-living adjustments — "to our most senior employees."
This "gift" is paid for by cutting benefits to new employees, Perry said, adding that "I do see the loss as permanent."
One health plan will be offered to new employees, which will cover 85 percent of the cost of any HMO plan during retirement. The city currently pays 100 percent of an HMO plan for SEIU members. It's been the policy that employees must retire with the city to receive the benefits.
In a staff report, Kathy Ferrar, employee services director, defended the cuts to retiree's health.
"In management's view, it would be irresponsible to continue to promise a benefit that, in our judgment, is not sustainable," Ferrar wrote. "The major concern with the retiree's health insurance program is the uncontrolled growth in the cost of health insurance combined with a growing number of retirees."
The new SEIU plan will contribute $3.3 million to the city's $18.8 million unfunded liability for retiree's health care. A 2004 actuarial report estimated the city's unfunded liability to be $43.8 million, but the city has put away money since then to bring it down to $18.8 million.
Council member Mike Kasperzak, also in his last meeting, called the changes to retiree health coverage "cutting edge." According to city management officials, it has been a priority to deal with the unfunded liability problem for retiree's health care. Kasperzak, active in the National League of Cities, said most cities have just begun to look into the problem because of new federal accounting requirements.
Pensions, pensions, pensions ...
Perry said there will be a large number of people retiring — now that there is a large pension available to senior employees — who will not have to pay for it the way new employees will. City managers say the big increase is necessary to remain competitive with other cities.
Like the Eagles, SEIU members will receive an increase in their pensions from 2 percent to 2.7 percent at age 55. The benefit allows employees with 30 years of service, for example, to receive 2.7 percent of their highest salary annually during retirement for each year worked, or 81 percent. By contrast, a 2 percent pension benefit would be worth 60 percent after 30 years.
Employees currently pay 7 percent of their salary toward their pension, but will start paying 10 percent this summer and 11.25 percent the year after.
Both the Eagles and SEIU pension agreements are contingent upon getting about 30 non-sworn Police Officer's Association members to agree to a similar pension plan this spring. Having to negotiate a similar pension plan with three unions can make things challenging, Ferrar said, but a common agreement is required by CalPERS.
Other details of the plan include capping the cost of the city's most expensive health plan at $1,497 a month, the creation of a voluntary, tax-sheltered retirement health saving account and a cost-of-living salary increase of 3.5 percent for the first two years and 3.2 percent for the last year of the contract.
The contract would take effect retroactively to July 2006, and expires in June 2009.