By Joe Tash
The Santa Fe Irrigation District’s board of directors has directed staff to research how much money the district would save if it reduced retirement benefits for new employees, in a bid to trim operating costs.
Government agencies across the nation are grappling with escalating employee pension costs, following increases granted to workers in previous years. The problem of escalating costs was exacerbated by the financial downturn, when pension funds’ investment returns plummeted.
Irrigation district directors discussed potential savings in both pension costs and health benefits for retirees at their board meeting on Thursday, March 17. Following the open session, the board went into a closed session meeting, where members asked staff to gather information about possible savings for both pensions and retiree health benefits, according to board members.
“The party’s over, we need to contain the pension costs,” said director Andy Menshek, who was elected to the board in November.
The district has come under increasing pressure from ratepayers to cut expenses in the wake of a series of rate increases. In December, the board raised rates by 12 percent for the current year, and approved potential rate increases of up to 12 percent for each of the next two years. These increases came on top of rate hikes totaling 50 percent over the past three years.
The irrigation district provides water to some 22,500 residents of Rancho Santa Fe, Solana Beach and Fairbanks Ranch. It has 48 employees, although five positions are currently vacant. Under the district’s current retirement program — administered through the California Public Employees’ Retirement System — workers can retire at age 55, and receive 2.7 percent of their final year’s pay for each year of service.
Under a second tier of retirement benefits for new hires, employees would receive reduced benefits, such as being able to retire at 60 and receive 2 percent of pay for each year of service.
Irrigation district general manager Michael Bardin said in order for a second tier of retirement benefits to be established, the district would need to amend its contract with CalPERS and also negotiate the change with the district’s employee association.
Several directors expressed their interest Thursday in exploring potential savings in both pension and retiree health benefits. One option is to find a new provider for the health benefits, which are now provided through a contract with CalPERS.
“My personal thinking is the current system is not sustainable. Therefore we have to look at ways to correct where we are,” said board president Michael Hogan.
In the current fiscal year, which ends in June, the district has budgeted $1.2 million for employee pension costs, and $632,000 for retiree health care, according to Bardin. The latter amount includes both the current year’s premium for retiree health care, and payment into a fund to cover future retiree health care costs.
The district’s operations budget for the current year, including debt service, is $22.8 million, meaning pension and retiree health benefits account for roughly 8 percent of spending.
District officials said more drastic changes to employee retirement benefits, such as dropping the pension plan in favor of a 401k-style savings plan, would require state legislation.
Another way the district can save money is by increasing employee contributions to pension benefits. In January, the board of directors approved a new two-year contract with employees that increases their contributions from 1.5 percent of their salary annually, to 3 percent, over the course of the agreement.
Menshek — who abstained from voting on the agreement because it came up at his first board meeting — said the district should have pushed for even larger retirement contributions from employees.
In light of the rate increases imposed on district customers, said Menshek, “I felt the memorandum of understanding was a little too generous and should have contained a few more concessions in area of pension reform.”
Hogan said the new employee agreement contained no raises, and froze pay for more than half of employees to bring them in line with pay in the local market.
“We chose to select what we thought were the higher priorities at this time,” he said.
Menshek said the district could save money by establishing a second retirement tier now, because some 25 percent of the district’s employees will become eligible for retirement during the two years of the new labor agreement.
But whether employees would agree to such a change — even though current workers would not be affected — remains unclear.
Paul Duckworth, president of the district’s employee association, said members would have to consider any proposal by the district and evaluate it before deciding whether to support it.
He said the district needs to look at the cost of imported water as well as operations costs if it wants to reduce pressure on rates.
Employees have already made concessions, he said, and will likely make more. For example, he cited the district’s decision in 2007 to reduce retiree health benefits for new employees.
“I think we have helped so far. With retiree health care, the freezing of pay this memorandum of understanding for the majority of members… and starting to pay more of (retirement) each year, I think the employees are starting to share in those costs,” Duckworth said. “I would anticipate further contributions as we go along.”