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HomeMy WebLinkAbout11 - Police Management Association Side LetterCITY OF 1 NEWPORT BEACH City Council Staff Report April 8, 2014 Agenda Item No. 11. TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Dave Kiff, City Manager— (949) 644 -3002, dkiff @newportbeachca.gov PREPARED BY: Terri L. Cassidy, Deputy City Manager /Human Resources Director PHONE: 949 - 644 -3303, tcassidy @newportbeachca.gov TITLE: Approval of Side Letter Amending the 2012 -2014 Memorandum of Understanding Between the City of Newport Beach and the Newport Beach Police Management Association ABSTRACT: The City of Newport Beach and the Newport Beach Police Management Association (NBPMA) signed a Memorandum of Understanding (MOU) for the period January 1, 2012, through December 31, 2014. Included in the MOU is a provision that NBPMA employees share in the cost of the California Public Employees' Retirement Systems (PERS) pension obligation borne by the employer, under a "cost share agreement ". The proposed Side Letter between the City and NBPMA, based on an agreement reached between the representatives, amends the current MOU by lowering the ceiling (possible maximum) of the July 2014 cost -of- living adjustment; requires Tier III employees to participate in the cost share agreement; eliminates the reopener clause on the Classification and Compensation study; and retroactively modifies a cost -of- living adjustment (going from 1.3% to 2 %), aligning that with the date at which PMA members "picked up" an additional 3.1% in PERS costs. City Council adoption of the Side Letter is the final action required to complete the agreement. RECOMMENDATION: Approve the Side Letter with the NBPMA (Attachment A to the Staff Report) to: a) Reduce the ceiling of the July 1, 2014, cost -of- living adjustment from 2.5% to 2.0 %; b) Require new employees hired under Tier III (PERS 2.7 % @57 formula) to participate in the cost share agreement and contribute the same as employees in Tiers I and II; c) Eliminate the reopener clause for the Classification and Compensation study; and d) Adjust the 2013 Cost -of- Living Adjustment (COLA) and adjust the PERS contribution. 272 FUNDING REQUIREMENTS: See financial information in the body of the discussion. DISCUSSION: The Newport Beach Police Management Association represents approximately 35 employees in the classifications of Police Sergeant, Police Lieutenant, and Police Captain. The current MOU between the City and NBPMA is for the period January 1, 2012, through December 31, 2014. Consistent with City Council direction, contract terms negotiated in 2012 incorporate greater employee payment of the PERS benefit, including a provision that employees share in the City's pension obligation through a "cost share agreement ". As well, the MOU includes negotiated cost -of- living adjustments (COLAs) based on the rate of inflation and tied to the Consumer Price Index (CPI), with a ceiling (maximum) of no more than 2% in July 2012 and 2013, and no more than 2.5% in July 2014. At the time the MOU was negotiated in 2012 the California Legislature had not yet adopted comprehensive pension reform. The Public Employees' Pension Reform Act (PEPRA), which became effective January 1, 2013, was enacted to curtail growing pension obligations and introduced a lower retirement benefit formula for employees newly hired into the PERS system (2.7 % @57 for Police and Fire). For Newport Beach, this introduced a third (III) tier benefit since the City had implemented lower tier formulae in advance of the Legislature's action (a 3 % @55 benefit for Police). Since the MOU between the City and NBPMA was signed prior to PEPRA, Tier III had not been contemplated and future employees who might be hired under that tier were not included in the cost share agreement. The cost share agreement provides that NBPMA employees increase their pick up in PERS costs to a total contribution of 12.8 %, effective July 1, 2013 (this amount is based on a calculation requiring employees to fund 26.5% of the total cost of the benefit). Also effective July 1, 2013, NBPMA employees were to receive a minimum 1% to maximum 2% cost -of- living adjustment (COLA), based on the consumer price index (CPI). However, the CPI came in low that year and employees received only 1.3% to offset their additional PERS contribution. Because the required PERS contribution was a greater increase than the employees received in COLA and because of a related adjustment for the Police Association, the NBPMA requested to re- negotiate with the City regarding additional salary offset. It is not typical that an MOU like this would be reopened, but these have not been typical times. The enactment of the "PEPRA" tier occurred near this period, for example. The City and NBPMA representatives met and conferred regarding the PERS cost share contribution, the July 1, 2013 COLA, and other matters. They agreed upon terms that are now memorialized in the attached Side Letter to the current Memorandum of Understanding. In exchange for an additional 0.7% salary offset, the NBPMA agreed to include Tier III employees in the cost share agreement, lower the ceiling for the July 1, 2014 COLA from 2.5% to 2.0 %, and eliminate the contract clause requiring a reopener for the Classification and Compensation study. The effective date of the additional 0.7% offset will be the same date at which PMA members paid an additional 3.8% in PERS costs (September 7, 2013). 273 The estimated cost to implement the terms of the Side Letter is $45,007 for the remainder of FY2013 -14. However, there also is a potential for cost savings (not quantified) if there is no ability to reopen the contract due to the Classification and Compensation study. Further, in the event that inflation is at 2.5 %, or higher, March 2013 - March 2014 (albeit unlikely), that cost savings is about $38,000. If approved by the City Council, Human Resources and Finance Department staff will work together to effectuate the changes as soon as practicable. ENVIRONMENTAL REVIEW: Staff recommends the City Council find this project exempt from the California Environmental Quality Act ( "CEQA ") pursuant to Sections 15060(c)(2) (the activity will not result in a direct or reasonably foreseeable indirect physical change in the environment) and 15060(c)(3) (the activity is not a project as defined in Section 15378) of the CEQA Guidelines, California Code of Regulations, Title 14, Chapter 3, because it has no potential to have a significant effect on the environment. NOTICING: The agenda item has been noticed according to the Brown Act (72 hours in advance of the meeting at which the City Council considers the item). ATTACHMENTS: Description Attachment A - Side Letter Agreement with the Police Management Association 274 Attachment A SIDE LETTER AMENDING THE 2012 -2014 MEMORANDUM OF UNDERSTANDING BETWEEN THE CITY OF NEWPORT BEACH AND THE NEWPORT BEACH POLICE MANAGEMENT ASSOCIATION WHEREAS, on September 11, 2012, the City of Newport Beach (the "City ") and the Newport Beach Police Management Association (the "Association" and together with the City, the "Parties ") executed a memorandum of understanding (the "MOU ") for the period of January 1, 2012 through December 31, 2014; and WHEREAS, included in the MOU is a provision for the Association's members to share in the City's costs of providing California Public Employment Retirement System (CalPERS) benefits; and WHEREAS, on November 25, 2012, the City adopted a Tier II benefit formula (3 % @55) for anyone hired after November 25, 2012; and WHEREAS, the MOU reflected the Parties' intent that Tier II employees would be included in the cost share provisions agreed to in the MOU; and WHEREAS, because the MOU preceded PEPRA, the MOU does not address the employees subject to PEPRA ( "Tier IIP') or the cost share provisions applicable to Tier III employees; and WHEREAS, the Association and the City engaged in a meet and confer process to discuss Tier III members participating in the MOU's cost share provisions and the payment by the employees of the City's pension obligation; and WHEREAS, the Association and City have reached agreement on an amendment to the 2012 -2014 MOU to increase contributions by Tier III members and increase the July 2013 cost -of- living adjustment from 1.3% to 2.0 %, and now wish to memorialize this agreement in this Side Letter; and WHEREAS, as part of this Side Letter, the Parties have agreed that the remaining terms of the MOU shall remain in full force and effect except as set forth in this Side Letter. NOW, THEREFORE, the City and the Association agree as follows: Section 1: MOU Section 2.A.3 shall be modified to read as follows: 2. Effective September 7, 2013, there shall be a base salary increase of two percent (2 %). 3. Effective the first payroll period commencing on or after July 1, 2014, there shall be a base salary increase of not less than one percent (1116), nor more than two percent (2%). The precise amount of the increase shall be determined with reference to the percent increase in the Consumer Price Index (All Urban Consumers) for the Los Angeles, Riverside, Orange County areas for the twelve (12) consecutive months ending on March 31, 2014. If there is either a decrease in the CPI, no increase in the CPI or the increase is less than one percent (1 %), 275 the base salary increase shall be one percent (1 %). If the increase is greater than one percent (1016), the base salary increase shall be in the same amount, but in no event, greater than two percent (2%). Section 2: MOU Section 4.D.6 shall be modified to read as follows: 6. All employees hired following City Council adoption of negotiated contract amendment(s) with Ca1PERS to implement a Tier II, 3 %@55 retirement formula or Tier III, 2.7°96@57 retirement formula under the Public Employees Pension Refbrm Act (PEPRA) shall be subject to the following retirement benefits. a. Tier II.- For employees first hired by the City between November 24 and December 31, 2012, or hired on or after January 1, 2013, and are current members of the retirement system, as defined in PEPRA, the retirement formula shall be 3% @ 55 for Safety and calculated on the average 36 highest months' salary. Tier III• For employees first hired by the City on or after January 1, 2013, and who do not meet the Tier II criteria, the retirement formula shall be 2.7°9.@57 and calculated on the average 36 highest months' salary. b. All such hirees shall individually pay 100% of the statutorily mandated member normal employee PERS contribution as follows: Safety Tier II employees shall contribute 9% and Tierlll shall contribute 11.25% C. Unless specifically modified herein, said newly hired employees shall be subject to other then- existing City -PERS contract provisions. Section 3: MOU Section 4.13.7 shall be modified to read as follows: 7. Provisions under PEPRA provide varying employee contribution rates by bargaining unit, classification, or benefit facto; within a cost share agreement. Effective the payroll period including September 7, 2013, or as soon thereafter as is reasonably possible, the City shall take action to amend its contract with PERS to provide for a Government Code Section 20516(a) authorized cost sharing by safety unit members in an amount that equals a total 12.8% employee contribution. For employees in Tiers I and II, the 20516(a) cost share contribution shall be 3.8% of compensation earnable. The 3.8% is in addition to the normal 9% Member Contribution. For employees in Tier III the cost share contribution shall be 1.55% of compensation earnable, which is in addition to the 11.25% Member Contribution. This cost sharing contribution shall be treated as normal member PERS contributions to the extent provided by statute, The parties acknowledge that implementing the Government Code Section 20516(a) PERS contract amendment as to all unit safety members is contingent upon the cost sharing contribution being uniform with respect to all local police officers within the City and/or in compliance with any and all other provisions as may be mandated by statute 2 PMA Side Letter to 2012 -2014 MOU 276 and/or PERS. (Therefore, compliance with the requirement of uniform contribution with respect to all local police officers will require an agreement with the NBPMA which is in accord with the cost sharing agreement of the NBPMA.) The parties acknowledge that compliance with the Government Code Section 20516(a) "uniform contribution" requirement within the classification of all local police officers is not a certainty and may not be possible at the time of adoption of this 2012 -2014 MOU. The parties further acknowledge that implementation of a Government Code Section 20516(a) PERS contract amendment is contingent upon PERS determining that all conditions precedent to a Government Code Section 20516(a) contract amendment have been met. Therefore, the parties acknowledge that implementing a Government Code Section 20516(a) PERS contract amendment as to unit safety members will entail the passage of an unspecified period of time and in fact, may not be approved by PERS. Therefore, the parties further agree that if a Government Code Section 20516(a) PERS contract amendment is not implemented, the parties shall, effective September 7, 2013, utilize Government Code Section 20516(f) to effectuate the three point eight percent (3.8 %) safety member cost sharing contribution. Implementation of cost sharing pursuant to Government Code Section 20516(f) shall remain in full force and effect unless or until a Government Code Section 20516(a) contract amendment is approved by PERS. To the extent authorized by the IRS and/or Franchise Tax Board, Government Code Section 20516(f) cost sharing shall be implemented through pre -tax payroll deductions. Finally, if for any reason unit safety member cost sharing is not authorized by either Government Code Section 20516(a) or (f), then effective concurrent with either disallowance by PERS of such cost sharing or a Superior Court judgment being rendered disallowing cost sharing pursuant to Government Code Section 20516(a) or (f), the above Section 2.A(f) three point eight percent (3.8 %) base salary increase shall be immediately terminated and the parties shall reconvene the meet and confer process confined to the issue of a replacement for the three point eight percent (3.8 %) cost sharing and three point eight percent (3.8 %) base salary increase. Moreover, upon the termination of the three point eight percent (3.8 %) base salary increase, the City shall simultaneously terminate any employee cost sharing pursuant to subparagraph 8 of this Section, unless and until such three point eight percent (3.8 %) base salary increase is reinstated by subsequent mutual agreement of the parties. Attached to this Memorandum of Understanding as Exhibit "B" is a March 1, 2012 letter from PERS Senior Pension Actuary, Kerry Worgan. Exhibit `B" is incorporated by reference into this MOU. Based upon the representations made in Exhibit `B ", it is the agreement of the parties that unless and/or until modified pursuant to the meet and confer process or as mandated by law, these designated safety member cost sharing contributions shall continue until the August 26, 2020 "expiration date" designated in Exhibit `B" and shall then concurrently revert to the amount of two point one four two 3 PMA Side Letter to 2012 -2014 MOU 277 percent (2.142 %) on August 26, 2020, unless and/or until said amount is modified pursuant to the meet and confer process and/or requirements of law. Section 4: MOU Section 4.D.9 shall be modified to read as follows: 9. Percent of retirement funding amount to be paid by safety members. The CaIPERS safety retirement defined benefit plan is funded by CaIPERS mandated employer contributions based on a percentage of payroll (and statutorily mandated employee member contributions, as well.) The combined employer and member contribution percentages constitute the cost of funding for the safety retirement plan. Effective September 7, 2013, when added to the safety normal member contribution of 9% (Tiers I & 77) or 11.25% (Tier 111) of compensation, unit members who are safety employees shall be funding twenty-six point five percent (26.5%) of the cost of the safety retirement plan. (The twenty-six point five percent (265116) amount is the result of adding the nine percent (9%) normal member contribution to the three point eight percent (3.8116) employee payment of the employer cost of retirement funding described in section 4.D.7, pursuant to Government Code Section 20516 The safety member funding of twenty -six point five percent (26.5%) of the cost oj'the retirement plan shall remain in full force and effect on and after September 7, 2013, subject to the mandate that maintenance of the twenty-six point five percent (26.5%) member funding of the retirement cost shall be limited to an increase or decrease in Government Code .§ 20516 employee cost sharing of two percent (2 %). For example, maintenance of twenty-six point five percent (265%) employee retirement funding rate shall result in a maximum Government Code § 20516 employee cost sharing of five point eight percent (5.8 %) and a minimum of one point eight percent (1.8 %). In the event that compliance with the above twenty-six point five percent (26.5 %) member funding of retirement cost would result in a member funding an excess of any statutory or other legal limitations on such funding, each affected employee shall fund the maximum amount (not to exceed twenty- six point five percent (26.5%) plus or minus two percent (2 916)) allowed by statute or other legal authority. Section 5: MOU Section 5.E shall be eliminated in its entirety. Signatures on the following page. 4 PMA Side Letter to 2012 -2014 MOU 278 APPROVED AS TO FORM: CITY ATTORNEY'S OFFICE Date: / / ' By: f�rrn Aaro C. Harp V City Attorney ATTEST: Date: Lm Leilani I. Brown City Clerk NEWPORT BEACH POLICE MANAGEMENT ASSOCIATION Date: Steve Rasmussen, President CITY OF NEWPORT BEACH, a California municipal corporation Date: Lo Rush N. Hill, II Mayor PMA Side Letter to 2012 -2014 MOU 279