Contra Costa County Grand Jury Report No. 1010 Pension Spiking: Who Really Gets Stuck?

Increased pension costs directly reduce funds available for services. Higher pension obligations also become a debt to taxpayers of Contra Costa County. Responses: Employer Response Employer’s Comments Contra Costa County Agrees Unless employers reach agreements with recognized Board of Supervisors employee organizations to pay the increased pension costs, in which case the higher pension obligation would become a debt to employees rather than taxpayers. Contra Costa County CCCERA is not an employer member. CCCERA Employees’ Retirement employees are by law County employees. Association Bethel Island Municipal Agrees Improvement District Byron, Brentwood, No Knightsen Union Response Cemetery District Central Contra Costa Agrees Sanitary District Contra Costa Housing Partially While this statement is generally true, if agencies require Authority disagrees increased pension costs to be paid by employees, then these costs will not be borne by taxpayers. Also, it should be noted that the Housing Authority’s programs are 100% federally funded with additional revenue generated from investment, development and contractual activities. The Authority does not receive funding from the County’s general fund. Contra Costa Mosquito Partially For our District, expenses for employee salaries and and Vector Control disagrees benefits are budgeted expenses. Costs for pension District benefits, like all benefit costs, are annually monitored, and options to contain costs explored. Pension obligation costs are included in long range planning and when making new employment decisions to ensure revenue projections can sustain expenditures related to number of hires. The District’s pension costs are well under control; we have not conducted the legal analysis necessary to reach any conclusion as to whether higher pension obligations become a debt to taxpayers of Contra Costa County. Local Agency Formation Agrees Commission (LAFCO) Rodeo Sanitary District Agrees In-Home Supportive Agrees Unless employers reach agreements with recognized Services Authority employee organizations to pay the increased pension (IHSS) costs, in which case the higher pension obligation would become a debt to employees rather than taxpayers. First 5 – Children & Agrees With the knowledge that at least some of the increased Families Commission pension cost could be assumed by employees rather than the employers or taxpayers. Contra Costa County Agrees Unless employers reach agreements with recognized Fire Protection District employee organizations to pay the increased pension costs, in which case the higher pension obligation would become a debt to employees rather than taxpayers. East Contra Costa Fire Agrees Protection District Moraga-Orinda Fire Partially The District agrees that increased pension costs can District disagrees reduce the funds available for services to the extent that those costs are funded by the employer. The District does not understand the language of the second sentence because an affected agency faced with higher retirement costs does not thereby become indebted to taxpayers. Rather the affected agency may have a liability to CCCERA for increased contributions. Moreover, the term “debt” has a specific definition for public agencies. Employee pension costs are ongoing financial obligations of CCCERA member agencies arising out of labor agreements negotiated between the member agencies and the recognized employee representatives. Pension costs are not “debt” anymore than salaries and other negotiated benefits. Rodeo-Hercules Fire Agrees Protection District San Ramon Valley Fire Agrees District 2. Some CCCERA employer members are not fully knowledgeable about pension law and the financial impact of their decisions relating to the calculation of pension obligations on revenues and services. Responses: Employer Response Employer’s Comments Contra Costa County Agrees Board of Supervisors Contra Costa County CCCERA is not an employer member. CCCERA Employees’ Retirement employees are by law County employees. Association Bethel Island Municipal Agrees Improvement District Byron, Brentwood, No Knightsen Union Response Cemetery District Central Contra Costa Agrees Sanitary District Contra Costa Housing Agrees However, at HACCC all financial decisions relations to Authority the calculation of pension obligations are reviewed by outside experts who provide HACCC with an analysis of the costs of any proposed changes to pension obligations. This information is then provided to HACCC’s Board before any decisions are made concerning pension obligations. Contra Costa Mosquito Agrees From what the media reports concerning the actions of and Vector Control some employers, we have to assume this finding is District correct. However, our District strives to comply with all legal requirements regarding pension law and full disclosure of projected costs to the District of present and any proposed changes to benefits. We rely on CCCERA to be our main resource and have found they are knowledgeable regarding pension law. Local Agency Formation Agrees Commission (LAFCO) Rodeo Sanitary District Partially Rodeo Sanitary District has no way of knowing what disagrees other agencies know or do not know about pension law and the financial impact of their decisions. In-Home Supportive Agrees Services Authority (IHSS) First 5 – Children & Partially First 5 Contra Costa is not fully knowledgeable pension Families Commission disagrees law, but does retain counsel specifically on pension- related matters, including the Commission’s future pension obligations. Contra Costa County Agrees Fire Protection District East Contra Costa Fire Partially All of the current employees’ Memorandums of Protection District disagrees Understanding were in place prior to seating the Fire District’s Board of Directors on February 3, 2010. Moraga-Orinda Fire Partially Neither the District staff nor the Board of Directors has District disagrees any ability to know or judge the level of knowledge of other CCCERA member agencies about pension law and/or the fiscal impact of decisions relative to the manner of calculating pension obligations. Rodeo-Hercules Fire Agrees Protection District San Ramon Valley Fire Partially The District conducted public hearings /educational District disagrees sessions with the Board of Directors and the public in 2009 related to pension calculations and pension law. The Board commissioned a study of retirement related compensation issues. After several public work sessions, the Board took ten (10) substantive actions addressing retirement compensation issues. The District has no information with regard to the knowledge of other employer members with respect to pension obligations.

Employer members shall adopt procedures that require board members/directors to annually attend pension fund training provided directly or indirectly by CCCERA. Responses: Employer Response Employer’s Comments Contra Costa County Will not be CCCERA does not currently offer direct or indirect Board of Supervisors implemented pension training. However, the Board of Supervisors recently conducted a Pension Workshop to educate the Board, employees, and the public regarding basic pension information and issues and future educational workshops will be held on a regular basis. Bethel Island Requires Requiring ALL board members/directors to annually Municipal further attend pension fund training provided directly, or Improvement District analysis indirectly, by CCCERA may not be appropriate for small special districts. Who should attend, and how often, may depend upon the length of the training, the cost (if any), previous training by board members, the remaining length of board member terms, and the time/accessibility of the training. In small districts, sending the General Manager and Administrative Assistant/Payroll Clerk, along with selected directors, would probably be more beneficial in both the sort and long run. The District will draft and adopt a board policy addressing pension fund training requirements within 120 days of the CCCERA developing a pension fund training program. Byron, Brentwood, No Knightsen Union Response Cemetery District Central Contra Costa Requires At the time CCCERA has not committed to develop Sanitary District further training. If and when CCCERA commits to develop and analysis offer training, the District Board will consider adopting procedures to require Board Members to annually attend pension fund training provided by CCCERA within a month of receipt, and inform the Grand Jury of its considerations. During 2009 and 2010, the Board of Directors discussed the various issues and information regarding spiking, final annual salary (FAS), CCCERA’s direction to depool the employers, post retirement health benefits, the current and projected unfunded liability, AB 1987 and SB 1425 bills, and the financial impact to the District of future projected employer contribution rates approximately 13 times. Contra Costa Will not be CCCERA does not currently offer pension fund training Housing Authority implemented to Employer Members. However, if CCCERA offers this training in the future, HACC will access the training to determine if it would benefit Board and/or staff members. It should be noted that every member of the County’s Board of Supervisors serves on HACCC’s Board. The BOS recently held a Pension Workshop designed to educate the Board, County staff and the public about basic pension issues. The BOS plans to hold regular educational workshops on the pension system in the future. HACCC is currently in the process of merging its Advisory Board with its governing Board of Commissioners. When this is complete, three community members will join the existing members on the Board of Commissioners. These new members will receive training on basic pension issues. Contra Costa Will not be District Trustees welcome the opportunity to be provided Mosquito and Vector implemented such training by CCCERA. However, it would not be Control District formally appropriate or fiscally prudent to make this an annual requirement for all 22 Trustees, given that our District pension costs are well under control and we have only five pay elements used in determining Final Average Salary. Local Agency Will not be CCCERA does not currently offer direct or indirect Formation implemented pension fund training. Commission (LAFCO) Rodeo Sanitary Will be Upon receipt of notification from CCCERA that such District implemented pension fund training classes have been created. In-Home Supportive Will not be CCCERA does not currently offer direct or indirect Services Authority implemented pension training. However, the Board of Supervisors (IHSS) recently conducted a Pension Workshop to educate the Board, employees, and the public regarding basic pension information and issues and future educational workshops will be held on a regular basis. First 5 – Children & Will be To our knowledge, CCCERA does not provide such Families Commission implemented training for board members; however First 5 Contra in the future Costa will invite CCCERA to provide updates and pension information at Commission meetings annually. Contra Costa County Will not be CCCERA does not currently offer direct or indirect Fire Protection implemented pension training. However, the Board of Supervisors District recently conducted a Pension Workshop to educate the Board, employees, and the public regarding basic pension information and issues and future educational workshops will be held on a regular basis. East Contra Costa The District is willing to send Board Members and Staff Fire Protection to annual training regarding the retirement system. District Moraga-Orinda Fire Partially The District Board agrees with a recommendation for District disagrees periodic training or education of Board members on pension fund matters, and has therefore taken steps to see that ongoing education of District Board members occurs through its legal counsel, which counsel is knowledgeable in such matters. The District Board does not consider CCCERA to be the appropriate body to provide or sponsor training of District Board members because CCCERA’s legal and economic interests may be adverse to those of the District and CCERA’s past policies may have resulted, and may continue to result, in the imposition of greater costs upon the District than were required by law. Rodeo-Hercules Fire Will be It is the intent of the District Board of Directors to Protection District implemented develop a procedure that will include the requirement that all Directors attend annual training, when provided by CCCERA. The Board shall complete the required procedure within 6 months. San Ramon Valley Will be Implementation will be subject to the parameters of the Fire District implemented training program offered by CCCERA. Any training opportunities would be welcomed. Implementation of procedures related to said training would depend upon the process for the delivery of training. Some options may include: training delivered at scheduled CCCERA or member agency Board meetings; training delivered at CCERA offices; training delivered on-line; group training; or individual training.

Some employer board members rely heavily on input from staff. As members of the same pension system, the staff may benefit from actions recommended to their employer. Responses: Employer Response Employer’s Comments Contra Costa County Agrees Board of Supervisors Contra Costa County CCCERA is not an employer member. CCCERA Employees’ Retirement employees are by law County employees. Association Bethel Island Municipal Agrees Improvement District Byron, Brentwood, No Knightsen Union Response Cemetery District Central Contra Costa Agrees Sanitary District Contra Costa Housing Agrees Authority Contra Costa Mosquito Agrees From what the media reports concerning the actions of and Vector Control some employers, we have to assume this finding is District correct. However, our District Board members rely on staff, legal counsel, auditors and hired consultants for appropriate information regarding Board responsibilities and background information on topics before the Board. Local Agency Formation Agrees Commission (LAFCO) Rodeo Sanitary District Partially The District has no way of knowing what other district or disagrees agency board members rely on in making pension decisions. It is certainly possible, and even likely that they may rely on staff input, but some agencies such as RSD may rely on input from other professionals in making those decisions. In-Home Supportive Agrees Services Authority (IHSS) First 5 – Children & Agrees First 5 Contra Costa Commission rely on staff for Families Commission sufficient information to make informed, reasonable decisions. Contra Costa County Agrees Fire Protection District East Contra Costa Fire Agrees Protection District Moraga-Orinda Fire Partially Neither the District staff nor the Board of Directors has District disagrees any knowledge of the extent to which other CCCERA member agency board members rely heavily on recommendations from their respective staff. MOFD acknowledges and agrees that a board should recognize that staff advising a board may benefit from board decisions. Rodeo-Hercules Fire Partially In many cases it is true. However, at the Rodeo-Hercules Protection District disagrees Fire Protection District, the Board of Directors not only has staff to advise them, but they also rely on outside legal counsel and a contracted human resource provider. Both of these advisers are consultants and not District employees. They are both involved in giving advice during the decision making process for pensions, salaries and other benefits that District employees receive. San Ramon Valley Fire Partially The District Board of Directors hires an outside District disagrees negotiator with regard to negotiation of collective bargaining agreements. The negotiator reports directly to the Board of Directors. The District has no information with regard to the practices of other employer members with respect to pension system actions.

Many of the pay elements and policies related to calculating final compensation are at the discretion of the employer member. Responses: Employer Response Employer’s Comments Contra Costa County Partially The majority of the pay elements are collectively Board of Supervisors disagrees bargained rather than discretionary and all of the policies related to calculating final compensation, by State law, are the sole discretion of the CCCERA Retirement Board. The CCCERA Board determines whether an item is includable in the calculation of Final Average Pay. Contra Costa County CCCERA is not an employer member. CCCERA Employees’ Retirement employees are by law County employees. Association Bethel Island Municipal Agrees Improvement District Byron, Brentwood, No Knightsen Union Response Cemetery District Central Contra Costa Agrees Sanitary District Contra Costa Housing Partially Many of the pay elements are the result of collective Authority disagrees bargaining. By state law, all policies relating to calculating final compensation are at the sole discretion of the CCCERA Retirement Board. Contra Costa Mosquito Partially While we understand that employers have some and Vector Control disagrees discretion as to what cash remuneration to provide its District employees and over issues such as “straddling”, retirement law, court decisions (Ventura) and legal settlements (Paulson) have dictated what pay elements need to be used in determining the Final Average Salary. Local Agency Formation Partially Pursuant to State law, policies related to calculating Commission (LAFCO) disagrees final compensation are the sole discretion of the CCERA Retirement Board. The CCCERA Board determines whether an item is includable in the calculation of Final Average Pay. Rodeo Sanitary District Agrees In-Home Supportive Partially The majority of the pay elements are collectively Services Authority disagrees bargained rather than discretionary and all of the (IHSS) policies related to calculating final compensation, by State law, are the sole discretion of the CCCERA Retirement Board. The CCCERA Board determines whether an item is includable in the calculation of Final Average Pay. First 5 – Children & Disagrees The First 5 Contra Costa Commission has discretion as Families Commission to the setting of employee salaries and certain additional elements of employee compensation. However, the County Employee’s Retirement Law of 1937 and CCCERA establish whether or not a particular pay element must be included when calculating final compensation for purposes of pension benefits. First 5 Contra Costa does not have the ability to exercise any discretion as to whether or not an item of pay should be included in final compensation calculations. Contra Costa County Partially The majority of the pay elements are collectively Fire Protection District disagrees bargained rather than discretionary and all of the policies related to calculating final compensation, by State law, are the sole discretion of the CCCERA Retirement Board. The CCCERA Board determines whether an item is includable in the calculation of Final Average Pay. East Contra Costa Fire Agrees Protection District Moraga-Orinda Fire Agrees The District agrees subject to the proviso that pay District elements and policies related to the calculation of final compensation are subject to the meet and confer obligations of the employer member agencies with respect to collective bargaining agreements and subject further to the policies of CCCERA and to legal principles that may limit the Districts rights to act with respect to existing employees. Rodeo-Hercules Fire Agrees Protection District San Ramon Valley Fire Agrees The District commissioned a study of pay elements and District policies by an outside retirement legal firm. The report examined the calculation of final compensation. The Board of Directors enacted ten (10) recommendations to address final compensation issues.

Some employer member policies permitting pension spiking increase pension obligations, which in turn will annually increase the amount of pension funds needed. Responses: Employer Response Employer’s Comments Contra Costa County Agrees With clarification that the majority of “employer Board of Supervisors policies” that impact pensions are actually bargained contracts with recognized employee organizations. Contra Costa County CCCERA is not an employer member. CCCERA Employees’ Retirement employees are by law County employees. Association Bethel Island Municipal Agrees Improvement District Byron, Brentwood, No Knightsen Union Response Cemetery District Central Contra Costa Agrees Sanitary District Contra Costa Housing Agrees However, many of HACCC’s policies are a result of Authority collective bargaining. All policies relating to calculating final compensation are at the sole discretion of the CCCERA Retirement Board. Contra Costa Mosquito Agrees From what the media reports concerning the actions of and Vector Control some employers, we have to assume this finding is District correct. However, our District has not adopted policies that include pay items that factor into computing Final Average Salary that are not collected through employer and employee contribution rates. Local Agency Formation Agrees Commission (LAFCO) Rodeo Sanitary District Agrees In-Home Supportive Agrees With clarification that the majority of “employer Services Authority policies” that impact pensions are actually bargained (IHSS) contracts with recognized employee organizations. First 5 – Children & Partially Multiple factors in addition to employer member policies Families Commission disagrees may affect the amount of funds needed to cover pension obligations. Contra Costa County Agrees With clarification that the majority of “employer Fire Protection District policies” that impact pensions are actually bargained contracts with recognized employee organizations. East Contra Costa Fire Agrees Protection District Moraga-Orinda Fire Partially The District agrees that policies of employer member District disagrees agencies do permit the conversion of certain benefits to pensionable compensation which has the consequence of increasing pension benefits and member obligations. The District observes that certain conversions of benefits have occurred due to the policies and practices of CCCERA over which the District had, and continues to have, no control, which policies and practices have increased pension costs. The District does not agree with the use of the pejorative term “spiking” as it suggests some sort of illegal action when in fact there is not a commonly accepted definition for the term. Rodeo-Hercules Fire Agrees Protection District San Ramon Valley Fire See #4 above with respect to the District. The District District has no information regarding other employer members.