Carlsbad seeing extra cost from pension changes

By: BARBARA HENRY - Staff Writer | Saturday, April 9, 2005 10:33 PM PDT ∞

CARLSBAD ---- A recent change to the city's pension system and declining returns on the retirement plan's investments will cost Carlsbad an extra $4.4 million this fiscal year, city officials report.

For the previous fiscal year ---- the period from July 1, 2003 to June 30, 2004 ---- Carlsbad owed the state retirement system $5.5 million.This year, that figure is expected to jump to $9.9 million, or 16 percent of the city's payroll costs.

There are two reasons for Carlsbad's rapidly climbing pension payments, city Administrative Services Director Jim Elliott said.

First, the managers of the state retirement fund are charging city governments more now to make up for the poor performance on the pension plan's stock market investments several years ago. By law, they can't reduce benefits promised to retired workers, so participating cities have to pay more to make up for the stock market's disappointing returns, Elliott said.

Second, Carlsbad, like many California cities, has recently increased the amount of retirement benefits it offers its employees, Elliott said.

The two together add up to multi-million-dollar increases in expenses for Carlsbad, and many other cities.

"It's a significant change in the cost of pensions, which is why cities have been so concerned," Elliott said.

Including everyone

Carlsbad began offering what's known as a 3-percent-at-60-retirement benefit to the majority of its 646 employees in January.

Under the program, employees who retire at age 60 can collect a pension of 3 percent of their highest salary times the number of years they've worked for the city. For an employee who has worked 30 years, the pension benefit would be 90 percent of his or her top pay.

The average city employee earns a salary of just under $61,000, Elliott said. Carlsbad will owe $14,382 to the pension system this year to give that employee, who on average has worked for the city for 10 years, the new retirement benefit at a later date, Elliott said. City pension payments vary from year to year depending on how well the pension plan's investments are doing.

Many cities, including Carlsbad, began offering increased pension benefits to their firefighters in the wake of the Sept. 11, 2001, attacks on the World Trade Center. Once the emergency services folks got it, other employees wanted it, too.

"To me that was only fair that everyone be included," said Carlsbad Mayor Bud Lewis. "They're all important to the city."

Carlsbad's police officers and firefighters have a 3-percent-at-50 plan, meaning they can retire at age 50 and collect the benefit. The police began receiving the benefit in 2001, the firefighters in 2004.

Collecting the money

Because of the way the state pension system is structured, it is possible for some long-time employees to make more money each year in retirement than they did when they worked for the city.

Take retired city arborist Fred Burnell, 57, for example. He's eligible to collect 112 percent of his highest annual salary, which topped out in the mid $70,000, he said.

Burnell worked 32 years in Carlsbad's public works department, starting when he was 25. Under the state retirement system, he's allowed four additional years' credit for the time he spent in the military. Burnell also took advantage of a pension plan option that allows employees in essence to "purchase" extra years. In total, he ended up with more than 41 years in his pension benefit calculation.

"It always amazed me how you can you work long enough and get more than 100 percent of your pay," he said.

His wife gets the benefit if he dies before her, but it ends there. If he and his wife die soon, their relatives won't get anything. He's taking a risk that he's going to live a long time, he said.

Competing for employees

For police and firefighter union leaders, the goal of the new pension plan is to allow older workers to retire from their high-stress jobs earlier.

"By getting them out of an intensively physical job ... you don't break people," said Michael Davis, 36, president of the 70-member Carlsbad Firefighters Association.

And, if they don't work as long, they're less likely to get injured, he said. That means the city won't have as many disability claims, Davis added.

The new retirement plan also is a recruiting tool, he said. Job applicants often ask whether Carlsbad has the 3-percent-at-50 benefit, Davis said.

The issue of making sure Carlsbad is attractive to job applicants was a factor in the council's decision to support the retirement plan, Carlsbad's mayor said.

"What really nailed us as a City Council was when (then-Gov.) Davis gave it to the Highway Patrol," Lewis said.

Going too far?

There were other reasons to support the plan, the city's administrative services director said. Because the city was willing to accept the pension proposal it won concessions from the city's unions on other negotiating points, Elliott said.

The unions agreed to lower annual raises ---- 3 percent to 3.5 percent ---- and they signed a five-year contract, he said.

Carlsbad, which is known for its tightfistedness, has the money to pay the pension increases --- its budget surplus last year alone totaled $12.6 million.

"Luckily, Carlsbad is in a good position compared to many others," the city's mayor said.

However, city officials will be monitoring to make certain things don't get out of hand, the city's administrative services director said.

At the state level, there's already talk that things have gone too far. Gov. Arnold Schwarzenegger has proposed to privatize the system and change the benefits it offers.

"If I was a public employee," Carlsbad's mayor said, "I'd say, 'Baloney. Let's keep it like it is.' "

But as an elected official responsible for approving the city's budget, Lewis said he can see why the governor would want to do it as a cost-saving measure.

Contact staff writer Barbara Henry at (760) 901-4072 or bhenry@nctimes.com.

First name only. Comments including last names, contact addresses, e-mail addresses or phone numbers will be deleted. Attempts to misrepresent your identity or impersonate any person will not be approved. All comments are screened before they appear online, so please keep them brief. Comments reflect the views of those commenting and not necessarily those of the North County Times or its staff writers. Click here to view additional comment policies.