View: Review Needed for "Golden Handshake" Offer to City Employees

On Tuesday night (August 21), the El Cerrito City Council is considering a proposal to offer 43 employees with an early retirement incentive of two year’s service credit.  I am concerned that our City is about to make a serious fiscal mistake, for which we all will be paying for in the future. 

This two-year’s service credit is colorfully named by CalPERs, the City of El Cerrito’s pension administrator, as the “Golden Handshake.”  In a nutshell, the Golden Handshake, which is authorized under California law, allows El Cerrito to offer employees a two year service credit incentive based on age and minimum employment years’ requirements if the City is facing “impending mandatory transfers, demotions, and layoffs.”  El Cerrito does not currently meet these conditions.

A little background on the ‘Golden Handshake’ and 12 reasons why this may be a bad idea.

1.  First, El Cerrito already offers its employees with the right to retire with full pension benefits as early as 50 years old.

2.  Any retirement incentives offered to employees will create extra pension costs for El Cerrito taxpayers.  CalPERs charges El Cerrito for the Golden Handshake incentive based on the cost of two years, interest, and an expected return on investment, which it spreads (or amortizes) over a number of years.  CalPERs’ return on investments has been under scrutiny for over a decade as it has generally failed to meet its projected investment returns, which has forced El Cerrito pension costs to rapidly increase.

3.  This is the seventh time since 1992 the City of El Cerrito intends to offer a Golden Handshake to employees.  It was first offered in 1992 because of severe City fiscal issues. 

4.  The City offered the same two-year’s service credit twice in the last 8 years:  2004 and 2009.  The City claimed in both 2004 and 2009 it would save money by (1) leaving positions open for at least three months and (2) hiring new personnel with lower wages and benefits.  These are the same claims the City is making again, which are essentially short-term, one-time savings without any fundamental benefits reforms.

5.  There has been no verification from the City that its projected savings in 2004 or 2009 were realized.  Plus, the City has not disclosed how much money it paid other staff to cover work shifts of early retirement incentive employees in 2004 and 2009. 

6.  Each time El Cerrito offers this early retirement incentive, CalPERs requires the City to certify it is facing lay-offs, transfers, demotions, and lay-offs.  El Cerrito was not facing this situation in either 2004 or 2009, and I do not believe this is the current situation.

7.  Let’s suppose the City hires new (or replacement) staff for each position left vacant by an early incentive retirement at a lower salary and benefit.  With guaranteed annual pay raises, cost of living adjustments, and increases to benefits costs (i.e. medical, dental, life, retirement costs, etc.), any savings from new employees compensation could easily pass saving from early retirements within one or two years, leaving El Cerrito taxpayers in the red.

8.  The City indicates the early retirement incentive provides the “opportunity for longer-term savings by indentifying opportunities to reduce or reorganize current staff.”  No information has been provided on these potential savings through reduced or reorganized staff.  In fact, there is no guarantee of any reorganization if the Golden Handshake is authorized. 

If the City, for example, were to guarantee all replacement employees and those who had not ‘vested’ into the current pension program would participate under a new or ‘second-tier’ retirement plan with less future economic commitment from El Cerrito taxpayers, this might be a worthwhile trade-off.

9.  In additional to the Golden Handshake, El Cerrito employees are also allowed to buy additional years of service credit with accrued sick leave, which CalPERs refers to as ‘Air Time’.  According to records produced by El Cerrito’s Finance Department in late July 2012, the un-funded sick leave liability for City employees (as of July 1, 2012) is over $6.2 million with $5 million eligible to cash in for additional service credit or Air Time.  El Cerrito taxpayers would be in the hook to fund any cashed in sick leave, which means even higher pension costs.  We need to understand these potential additional CalPERs pension costs (for Air Time) as part of the Golden Handshake cost-benefit review.

El Cerrito taxpayers need to clearly understand the combined extra pension costs for the Golden Handshake and Air Time BEFORE the City Council hears this matter. 

10.  El Cerrito taxpayers already provide early retirement to city employees with full pension retirements vesting as early as 50 years old.  This full retirement benefit is more generous and well in excess what is available in the private sector and to federal employees.  And, many of these City retirees are retiring with 6-figure annual retirement checks that we could be responsible for funding up to 40+ years.  Therefore, as long as retirements are offered to 50 something year olds, no early incentives should offered.

11.  The Golden Handshake and Air Time issues should be presented to the citizen committee (appointed by our City Council) or Financial Advisory Board (FAB) for a full and transparent discussion.  Once the FAB has the opportunity to debate, evaluate, and make recommendations to the City Council on the proposed Golden Handshake and Air Time costs.

12.  The City Council needs to make a number of tough decisions to get the City employee pension program and employee compensation under control.  The current pension plan is not sustainable and it could collapse without significant reform.  Currently 80%+ of the total City budget pays employee compensation, which is simply too high.

BEFORE the Golden Handshake is voted on by our City Council, El Cerrito taxpayers deserve the full facts and accurate short- and long-term costs. 

The CITY OF EL CERRITO needs to disclose and present:

• Full cost of the Golden Handshake and Air Time that taxpayers will be responsible to pay, including the time period
• Reorganization plan the City claims will create on-going cost savings
• Financial results from 2004 and 2009 Golden Handshake early retirement incentives of actual costs and savings, including extra costs for staff to cover early retiree vacancies

The CITY COUNCIL needs to let the FAB do its job before this issue is considered:

• Review the Golden Handshake and Air Time costs
• Evaluate the cost savings from a reorganization plan
• Evaluate if cost savings were realized as projected from 2004 and 2009 Golden Handshake awards.

THEN and only then, taxpayers will have an open view about these potential extra retirement incentive costs the City wants us to pay.

PLEASE join me and contact our City Council members and tell them “NO” to the Golden Handshake until the Financial Advisory Board can review, discuss, evaluate, and make recommendations on the financial options for the City. 

Email for City Council Members:

• Mayor William Jones:  bjones@ci.el-cerrito.ca.us
• Mayor Pro Tem Greg Lyman:  glyman@ci.el-cerrito.ca.us
• Council Member Janet Abelson:  jabelson@ci.el-cerrito.ca.us
• Council Member Rebecca Benassini:  rbenassini@ci.el-cerrito.ca.us
• Council Member Ann Cheng:  acheng@ci.el-cerrito.ca.us

Denise Sangster is an El Cerrito resident with more than 25 years of management consulting experience working with start-up to global IT companies.

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