CalPERS offers a Two-Year early retirement program for public agencies facing downsizing, layoffs, and/or reorganizations due to financial pressures or organizational changes.  The program allows agencies the opportunity to reduce labor costs by lowering per unit staff cost and maintaining target vacancies.  The cost of the program is amortized over five years.  The program provides an extra two years of service credit to employees who:

• Have attained 50 years of age;

• Have five or more years of service credit with CalPERS;

• Retire within the respective 90-day retirement window.
  
  

The early retirement benefit is intended to generate short-term and long-term savings through voluntary attrition of personnel.  Through a combination of hiring new employees at entry level wages, holding positions vacant for some period of time, and/or through the permanent reduction in the workforce, voluntary retirements will provide opportunities to reduce labor expenses. The cost of providing this benefit will be rolled into the City’s actuarial estimate two-fiscal years following implementation.  This will result in an increase to the percentage of payroll the City must pay on each active employee, beginning in FY 2020-21.  Budget savings will be realized from the reduction in labor costs less the cost of the program, amortized over five years.

On March 27, 2018, the City Council approved the implementation of the two-year early retirement program, and directed staff to bring forth a Resolution (Attachment A) effectuating the program for all eligible employees consistent with California Government Code § 7507 and § 20903.  If adopted, eligible employees must retire during the “window” period, beginning July 2, 2018 and ending October 1, 2018. 

The ultimate cost of the program and net annual labor cost reduction achieved depends on the number of eligible employees who elect to participate in the program.  The CalPERS cost calculation formula requires the City to publicly disclose the cost of providing this benefit as if ALL eligible employees elect early retirement. A total of 174 employees would be eligible for the program for all City departments.  The total present value of future cost for providing this benefit to all 174 eligible employees is estimated to be $12,953,940.  The total cost is amortized over a five-year period, resulting in an annual cost of $2,917,554 or an increase in the employer’s contribution rate of 0.0477 over the same period. 

However, it is important to note that only a fraction of eligible employees will ultimately elect to retire early.  Staff projects 20 percent participation in this program which would achieve net labor reductions (savings) of up to $1.1 million. 

It is recommended that the City Council:

• Adopt the attached Resolution to Grant Another Designated Period for Two Years Additional Service Credit for CalPERS members listed in Attachment “B,” who meet eligibility requirements.    

Attachment A:  Resolution

Attachment B:  CalPERS Members List