HomeMy WebLinkAbout04/21/2009, C8 - VOLUNTARY SERVICE RETIREMENT INCENTIVE PROGRAM i l
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j acEnaa Report �H sf
CITY OF SAN LUIS OBI S PO
FROM: Monica Irons, Director of Human Resources-4-
Prepared
esourcesPrepared By: Rachael Hendricks, Human Resources Analyst Pw
SUBJECT: VOLUNTARY SERVICE RETIREMENT INCENTIVE PROGRAM
RECOMMENDATION
Approve and implement a voluntary service retirement incentive program.
DISCUSSION
Background
Shortly after the Five Year Fiscal Forecast was presented to Council on December 16, 2008, staff
began working on reduction strategies to close the projected annual General Fund budget "gap"
of$10.4 million in fiscal years 2009-11.
In February of 2009 staff received guidance from Council in closed session regarding personnel
cost reductions and layoff prevention strategies. As a result, staff updated a layoff prevention
plan developed in 1992 by an employee working group. The updated plan has special emphasis
on personnel cost savings and employee retention. In reviewing and updating the Layoff
Prevention Plan staff also compared "best practices" in other organizations facing similar
circumstances. Retirement incentives were a common component in contemporary layoff
prevention plans. Retirement incentives aim at encouraging employees to commit to retire on or
before a specified date. This commitment or acceleration of retirement plans allows departments
to plan for and benefit from staffing savings.
Cities have structured retirement incentives in a variety of ways including: 1) purchasing two
years of California Public Employees Retirement System (PERS) service credit, 2) paying retiree
health premiums for a specified period, 3) contributing to a retiree health savings account, or 4)
paying a percent of annual pay as a one-time, lump-sum.
The City's Retirement Incentive Program
Staff considered and evaluated various retirement incentive options and programs and is
proposing a one-time, lump-sum service retirement incentive program (Attachment 1). The
program does not add on-going cost to the City as some of the other retirement incentive
programs staff explored. For example, purchasing PERS service credit potentially affects the
City's PERS rates for several years. The proposed program creates potential long-term savings
for the City, allows employee flexibility, and incurs only one-time short-term costs. A lump-
sum incentive provides individuals with the flexibility to defray the cost of retiree health,
purchase additional service credit through PERS, or use as they otherwise see fit.
CF'
Voluntary_Service Retirement Incentive Program Page 2
The proposed incentive amount varies depending upon an employee's retirement date. A higher
incentive amount is provided for a retirement date earlier in the financial planning period because
the potential savings are greater if a vacancy occurs sooner. The program provides for the
following payments for full-time regular employees (pro-rated for part-time regular employees):
Level One: Payment amount of$20,000 for employees who retire on or before August 31,
2009.
Level Two: Payment amount of$15,000 for employees who retire September 1, 2009
through December 31, 2009.
Level Three: Payment amount of$10,000 for employees who retire January 1, 2010 through
July 1, 2010.
This lump-sum incentive will be reported by the City to the Internal Revenue Service as taxable
income. The incentive payment is not considered compensation by PERS and therefore is not
considered in an employee's single highest year for retirement benefit calculations. After formal
adoption of the program by Council, applicants will be required to sign an agreement and release
of claims against the City in exchange for the incentive (Attachment 2).
Eligibility for the retirement incentive program is predicated upon a regular employee having
satisfied the conditions delineated by PERS with respect to age and years of credited service.
Regular employees, both full-time and part-time, are eligible to participate in the program. A
part-time regular employee's benefit under this program will be prorated based on the full-time
equivalency in the line item budget (e.g. an employee in a position budgeted at half-time would
receive 50% of the incentive amount). Temporary and contract employees are not eligible to
participate in this program.
Expected Results
The voluntary retirement incentive program was communicated to all employees in late February
and an application period was offered from February 26, 2009 through March 31, 2009. Twenty
one applications were received by the deadline. The majority of employees applying for an
incentive elected to retire earlier in the two year financial plan. This is expected to provide
needed flexibility in closing the budget gap. The chart below summarizes the incentive costs
assuming all employees who submitted an application follow through and execute an agreement
and release.
Payment Amount Number of Total One-time Incentive
Incentive Level By Level Employees Cost Per Level
Level One $20,000 13 $250,000*
Level Two $15,000 _ 4 _ $60,000
Level Three $10,000 4 $40,000
*One part-time regular employee is eligible for 50%of incentive.
GAAgenda reports\2009\Retirement Incentive\CAR-RetirementlncProg.doc
Voluntary Service Retirement Incentive Program Page 3
Impact of Program
The City currently has approximately 22 vacancies due to the hiring"chill" implemented in June
2008 and "freeze" implemented December 2008. The expected 21 vacancies provide further
flexibility in addressing the budget gap through possible restructuring and organizational
efficiencies. Of the retirement incentive vacancies, some positions may be eliminated, others
reclassified, or consolidated. Staff anticipates the hiring "chill" to continue through the 2009-11
Financial Plan providing additional scrutiny of all potential position replacements. Some
restructuring to achieve cost reductions have already been proposed in department operating
budget reduction options presented to Council on April 14, 2009. A sampling is included below.
• Administration: Consider restructuring to eliminate one administrative support position
and consolidate support for the Council, City Manager, and City Attorney in one position
instead of two.
• City Clerk. Reclassify from department head to mid-management for, at least, the two
year Financial Plan period.
• Public Works Administrative Services Manager. Eliminate and distribute current work to
existing Public Works staff.
• Recreation Manager. Consider restructuring to one Recreation Manager with
Administrative Analyst support.
FISCAL IMPACT
The potential fiscal impact of the one-time retirement incentive is $305,000 in the General Fund
.and $45,000 in the Water Fund.
Potential Cost by Fiscal Year
Fiscal Year Fiscal Year Fiscal Year
2008-2009 2009-2010 2010-2011
General
Fund $50,000 $245,000 $10,000
Water Fund $35,000 $10,000
The City has adequate resources in the 2008-2009 fiscal year budget for the incentives. Incentive
costs will be accommodated in the 2009-2011 Financial Plan and are anticipated to be more than
offset by ongoing salary savings through position reductions and restructurings.
ALTERNATIVES
1. Do not approve the retirement incentive program and the lump-sum payment. This
alternative is not supported as the program is in line with direction previously received
from Council and has been communicated to employees.
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Voluntary Service Retirement Incentive Program Page 4
2. Alter the retirement incentive program and the lump-sum payment. This alternative is not
recommended as the program is in line with direction previously received from Council
and has been communicated to employees.
ATTACHMENTS
1. City of San Luis Obispo Service Retirement Incentive Program
2. Retirement Incentive Application and Agreement
G:\Agenda reports\2009\Retirement Incentive\CAR-RetirementlncProg.doc ��'`
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Attachment 1
Page 1 of 2
City of San Luis Obispo Service Retirement Incentive Program
Offered through March 31, 2009
Purpose
Establish guidelines for the implementation of a retirement incentive program to
encourage retirements during times of significant fiscal stress. The program is designed
to induce retirements from employees who are, or will be during a specified timeframe,
eligible to service retire from the City of San Luis Obispo. The program offers a cash
incentive which varies by retirement date. Employees can use the incentive to defer
retiree health costs,purchase additional service credit time, or for any other purpose they
choose.
Eligibility
Eligibility for the retirement incentive program is predicated upon a regular employee
having satisfied the conditions delineated by the California Public Employees Retirement
System(PERS) with respect to age and years of credited service. Eligible regular
employees, both full-time and part-time, may participate in the Service Retirement
Incentive Program. A part-time regular employee's benefit under this program will be
prorated based on the full-time equivalency in the line item budget(e.g. an employee in a
position budgeted at half-time would receive 50% of the incentive amount below).
Temporarxand contract employees are not eligible to participate in this program
Payment Amounts Based on Retirement Date
The program offers a one-time lump-sum payment(subject to applicable taxes)
depending upon the employee's retirement date. A higher incentive amount is provided
for a retirement date earlier in the program period. Specifically, the program provides for
the following payments for full-time regular employees(pro-rated for part-time regular
employees):
1. Level One: Payment amount of$20,000 for employees who retire on or before
August 31, 2009.
2. Level Two: Payment amount of$15,000 for employees who retire September 1,
2009 through December 31, 2009.
3. Level Three: Payment amount of$10,000 for employees who retire January 1,
2010 through July 1, 2010.
The lump-sum payment will be reported to the IRS as taxable income. Required state
and federal income tax withholdings will be deducted from the payment to the employee.
The incentive payment is not considered compensation by PERS and therefore is not
considered in the calculation of an employee's single highest year.
Service Retirement.Incentive Program 1
i
Attachment 1
Page 2 of 2
Application Period
To be eligible to receive an incentive payment as described above, an employee must
submit a Service Retirement Incentive Program Application on or before.March 31,
2009 to Human Resources.
Incentive Payment to Employee
The incentive will be paid on the last day of an employee's City service contingent upon
receipt of an executed Agreement and Release. If an Agreement and Release are
rescinded, the employee is no longer eligible for the one-time lump-sum retirement
incentive payment.
Approval
This program(including the dollar amounts contained herein and form of application and
agreement) is subject to Council approval at a public meeting as the program has been
developed in response to Council direction in a February 17, 2009 closed session
regarding labor negotiations. Council authorized staff to communicate to interested
employees the key points of the program as soon as possible, and prior to final Council
public approval, in order to provide interested employees adequate time to consider the
benefits of the program and to get an earlier indication of how the program will affect the
City budget process. The Council will take final action on this program at the April 14,
2009 Council meeting as part of their strategic budget direction to staff.
Service Retirement Incentive Program 2
Attachment 2
Page 1 of 5
City of San Luis Obispo
Service Retirement Incentive Program Application
Please submit this Application to Human Resources as soon as possible, but no later than
5:00 pm on March 31,2009.
Final approval of your application will not be processed until you execute the attached
Agreement and Release. Although you are entitled 45 days to review the attached
Agreement and Release and to seek legal advice regarding the Agreement, you may
submit the Agreement and Release earlier. In order to participate in the program, you
must return the executed Agreement and Release to Human Resources no later than 45
days from the date you submit your Application.
Employee Name:
Job Title:
Department:
Service Retirement Date:
I voluntarily choose the following incentive amount based on my voluntary service
retirement date. (Check one box below.)
❑ Level One: Payment amount of$20,000 for employees who retire on or
before August 31, 2009.
❑ Level Two: Payment amount of$15,000 for employees who retire September
1, 2009 through December 31, 2009.
❑ Level Three: Payment amount of$10,000 for employees who retire January 1,
2010 through July 1, 2010.
EMPLOYEE SIGNATURE DATE
Service Retirement Incentive Program Application
and Agreement and Release 1 - Z
Attachment 2
Page 2 of 5
Agreement and Release
of the City of San Luis Obispo
Service Retirement Incentive Program
This Agreement and Release ("Agreement") is entered into this _ day of
, 2009, by and between ("Employee") and the City of
San Luis Obispo.
WHEREAS, the Employee is currently employed by the City of San Luis Obispo,
and
WHEREAS, the City of San Luis Obispo is offering a "Service Retirement
Incentive Program" ("Program"), Employee's application for which is attached to this
Agreement, to City of San Luis Obispo employees who are eligible for retirement on or
before July 1, 2010; and
WHEREAS, employees of the City of San Luis Obispo who are eligible to
participate in the Service Retirement Incentive Program may choose to participate in the
Program where the application period begins February 26, 2009 and ends March 31,
2009; and
WHEREAS, Employee is currently employed by the City of San Luis Obispo and
is eligible to participate in the Service Retirement Incentive Program, and voluntarily
chooses to participate in the Program; and .
WHEREAS, Employee agrees to retire from employment with the City of San
Luis Obispo no later than July 1, 2010,
THEREFORE, the Employee and the City of San Luis Obispo enter into the
following Agreement:
(1) Employee's Voluntary Service Retirement. The
Employee acknowledges that participation in the Program is entirely voluntary and
hereby knowingly and voluntarily requests retirement from employment with the City of
San Luis Obispo effective close of business on . By entering into this
agreement, Employee voluntarily resigns employment with the City of San Luis Obispo,
effective , and the City of San Luis Obispo acknowledges Employee's
voluntary retirement request and accepts Employee's resignation.
(2) Incentive. The City of San Luis Obispo will provide to
the employee one of the'following three options, based on service retirement date.
• Level One: Payment amount of$20,000 for employees who retire on or
before August 31, 2009.
• Level Two: Payment amount of$15,000 for employees who retire
September 1,2009 through December 31, 2009.
• Level Three: Payment amount of$10,000 for employees who retire
Service Retirement Incentive Program Application
and Agreement and Release -2-
- Attachment 2
Page 3 of 5
January 1, 2010 through July 1, 2010.
Based on the Employee's designated date of retirement, the Employee
qualifies for Level _ and the City of San Luis Obispo agrees to pay the amount of
$ on his/her last day of service with the City, which must occur prior to
. Employee acknowledges that the City has provided no
advice and made no representations as to the tax consequences of the Employee's
participation in the Program and affirms that s/he will be responsible for all tax liability
resulting from his/her acceptance of this incentive.
(3) Employee's group health insurance benefits will terminate
effective Following the voluntary service retirement, Employee may
continue City group insurance benefits to the extent allowed under PERS, COBRA or
other applicable law.
(4) On the Retirement Date, the City will pay to the Employee all
vacation time earned and unused as of the Retirement Date. Thereafter, Employee will
not be entitled to or accrue any additional vacation or other leave time and will not be
eligible for any fringe benefits following the Retirement Date, except as expressly set
forth in this Agreement.
(5) WAIVER AND RELEASE BY EMPLOYEE. In consideration of
the Incentive Program payments and other consideration as set out in this Agreement to
which Employee would not otherwise be entitled effective as of Employee's retirement
date, Employee, for him or herself and his/her heirs, executors, administrators,
successors, and assigns, hereby knowingly and voluntarily waives, releases, acquits and
forever discharges the City, its agents, officers and employees from any liability, action,
suit, claim, damages,judgment, known or unknown, liquidated or unliquidated, fixed or
contingent which Employee has ever had or ever may have, arising out of or in
conjunction with Employee's employment with the City or the termination thereof,
including, without limitation, claims under federal, state or local common law or statute,
as well as any form of employment discrimination prohibited under Title VII of the Civil
Rights Act of 1964, the Older Workers Benefit Protection Act, the Age Discrimination
in Employment Act, the Americans with Disabilities Act, ERISA, the Rehabilitation Act
of 1973, and any other local, state or federal anti-discrimination law or ordinance, any
applicable collective bargaining agreement, any applicable wage and hour or workers'
compensation laws (to the extent allowed by law), including, but not limited to any
claim or damages for wrongful discharge, severance pay, breach of contract, breach of
any express or implied promise, retaliation, breach of public policy, defamation,
negligence or other tortious conduct, or any other theory, whether legal or equitable.
Employee covenants that this Agreement and the releases contained in it
constitute a waiver and release of any and all claims, including existing or subsequently
discovered claims that are not known or suspected by employee to exist as of the date of
execution of this Agreement, which otherwise would be preserved by operation of
Section 1542 of the California Civil Code. Section 1542 provides as follows:
A general release does not extend to claims which the creditor does
not know or suspect to exist in his/her favor at the time of executing
Service Retirement Incentive Program Application
and Agreement and Release -3-
0
3-
0 -�
Attachment 2
Page 4 of 5
the release, which if known by him must have materially affected his
settlement with the debtor.
Notwithstanding the foregoing language, nothing herein contained is intended to release
any future Worker's Compensation claim or work related injury resulting from or caused,
by Employee's employment with the City of San Luis Obispo.
(6) Employee is hereby advised to consult with an attorney prior to
executing this Agreement. Employee acknowledges that s/he has been granted a period
of forty-five (45) days prior to the date by which final execution of this Agreement is
required within which to consider this Agreement. Employee acknowledges that if s/he
executes this Agreement prior to the expiration of that forty-five (45) day period, or if
s/he chooses to forego the advice of an attorney, s/he does so freely and knowingly, and
waives any and all future claims that such action or actions would affect the validity of
this Agreement.
Employee may revoke this Agreement within seven(7) calendar days after
signing it. Notice of revocation must be received by Monica Irons, Director of Human
Resources at the City of San Luis Obispo, 990 Palm Street, San Luis Obispo, CA 93401.
If Employee revokes this Agreement, the City will be immediately released of any further
obligation under this Agreement, the Employee shall return any payments already made
under this Agreement within three (3) business days following said revocation, and this
Agreement shall be void.
(7) Employee covenants that s/he has not commenced, and will not
commence, legal proceedings of any type, whether on his/her own behalf or on behalf of
any other person or entity, against the City or individuals or entities released in this
Agreement, or any of their respective successors or assigns, and further covenants not to
maintain, join or assist in any such legal proceeding, suit, charge, or action, except as
may be required by law.
(8) To the extent allowed by applicable law, the Parties agree to keep
the terns of this Agreement confidential and not to disclose those terms to anyone,
except a spouse, attorney, or tax adviser..
(9) If Employee breaches the promise in paragraphs five (5) and/or
seven (7) and files a lawsuit based on legal claims that Employee has released, Employee
shall immediately return all sums which were paid to Employee pursuant to this
Agreement.
(10) This Agreement shall be construed under the Laws of the State of
California and any dispute arising hereunder shall be conducted under the jurisdiction of
the County of San Luis Obispo Superior Court.
(11) Each party hereto agrees that in the event of any dispute
concerning this Agreement or claims, demands, liabilities or causes of action included
within its scope, the prevailing party shall be entitled to recover their attorney's fees and
costs. The prevailing party shall be the party who is entitled to recover its costs of suit,
Service Retirement Incentive Program Application
and Agreement and Release -4-
I - .
Attachment 2
Page 5 of 5
whether or not the suit proceeds to final judgment.
(12) If any portion of this Agreement shall be held invalid by a court of
competent jurisdiction, the validity of the remainder of this Agreement shall not be
affected.
(13) This Agreement supersedes any previous understandings,
agreements or correspondence of the parties on this subject and is binding on the parties,
their heirs, executors, administrators, and successors in interest.
(14) This document is the entire Agreement between Employee and the
City. The City has made no promises to Employee other than those in this Agreement.
This Agreement may not be changed orally, only in a written document signed by both
Parties. For purposes of this Agreement, the Parties shall be deemed to have participated
equally in its drafting.
(15) The employee understands that if s/he dies prior to his/her effective
retirement date, then this "Agreement and Release" and the incentive payment is void and
neither the City nor the Employee's heirs shall have any right or obligation defined
hereunder.
IN WITNESS WHEREOF, CITY and EMPLOYEE have executed the Agreement on the
day and year first set forth above.
Employee Signature Date
Ken Hampian, City Manager Date
APPROVED AS TO FORM:
Jonathan P. Lowell, City Attorney
Service Retirement Incentive Program Application
and Agreement and Release -5-
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