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City gives a little, gets a little on benefits
Is a two-tier system worth higher pension costs?

Determined to reduce the city's long-term liabilities, union negotiators are wheeling and dealing with employee groups this year to try and stem the runaway costs of benefits, both for current workers and retirees.

And so far, the city has signed up two of the three groups whose contracts are up, a pretty good batting average — although just like professional sports, it costs a lot to keep a good team on the field. Now, with the Eagles and the SEIU contracts settled, it will be up to 30 non-sworn police officers who must agree to similar pension terms before the city can implement the contract changes.

There are twists and turns in this year's negotiations, but here is what has happened so far:

What the employees get

• Retirement benefits jump substantially, from 2 to 2.7 percent of the highest year's salary for retirees with 25 years or more service. This means a 30-year employee aged 55 or older can retire at 81 percent of his or her highest pay, rather than 60 percent under the old plan. (An $80,000-a-year employee would receive $64,800 at 81 percent, compared to $48,000 at 60 percent.) The $4.2 million plan takes effect this July, funded in part by a pension reserve fund and increased contributions from employees.

• The 160 members of the SEIU Local 715 and about 200 middle managers and other workers known as the Eagles will receive salary increases of 3.5 percent for two years and 3.2 percent for the next year or two. The SEIU deal is for three years, while the Eagles' is for four. The raises are retroactive until July 1 of last year.

• The city will create a voluntary, tax-sheltered retirement health savings account for covered employees.

• City retirees who qualify will receive lifetime health benefits costing up to $1,497 a month.

On the city's side

• For the first time, two unions agree to a two-tier retiree health plan, which means that new employees will receive slightly lower health benefits during retirement (only 85 percent, instead of 100 percent, of the cost of an HMO).

• New SEIU and Eagle employees will have to wait 15 years to receive retirement health benefits. But the Eagles elected to have an option for those not planning to stay 15 years — after five years on the job, Eagles can receive $200 a month during retirement towards any health plan, and up to $300 a month will be available to those who have worked 10 years for the city.

• Lifetime retiree health benefits are capped at $1,497 a month.

• Employees will pay for a higher percentage of the retirement benefit, jumping from 7 to 10 percent this summer and to 11.25 percent the year after. Another portion of the increase will come from a pension reserve, which will lower the city's obligation even more over the next 20 years.

• Neither agreement will take effect until the city concludes similar negotiations with 30 non-sworn members of the Police Officer's Association.

Negotiations with members of fire and sworn police officers are expected to start up again this summer, although it is not clear if the city will pursue a two-tier strategy with them. Firefighters opted to accept a one-year extension of their current contract rather than a two-tier strategy for retirement health care.

As one of the more prosperous cities on the Peninsula, Mountain View needed to bring its compensation packages into line with its competitors, a goal that certainly was accomplished with these contracts.

But in giving up higher pension and other benefit costs, the city asked for and got a potentially precedent-setting two-tier system for retirement benefits. As noted by Kathy Ferrar, employee services director, "In management's view, it would be irresponsible to continue to promise a benefit that, in our judgment, is not sustainable."

We agree, and not because we think the city's workers are any less valuable today than before. But as the cost of health care continues to rise at double-digit rates, it is entirely appropriate for employees to share in the cost of retiree health care.

The bigger question is whether the city continues to award lifetime pension and health care benefits, even at 85 percent of a fixed cost, far into the future. Private industry is already off the defined-benefits bandwagon, but due to lack of political will on city councils and in Sacramento, municipal governments are stuck in a system that already is a huge drain on revenues.