1. Assessing Options and Alternatives Regarding Retirement Benefits Presented by: Steven Berliner, Partner, Liebert Cassidy Whitmore And Doug Tokerud, FSA, MAAA, Senior Actuary, Nicolay Consulting Group

2. Agenda 1.Vesting Issues 2.Reductions in Retirement Benefits a)Reducing EPMC b)Two Tier Systems c)Other Options 3.Layoffs 4.Reduction in Retiree Medical Benefits

3. Vexing Vesting Issues “Vested” –A right today for a benefit in the future –No deprivation of vested benefit allowed in most cases Contract Principles Apply

4. Vexing Vesting Issues When & How Much? –1 st day of employment (Employees have vested rights, not just retirees) –Amount can increase during term of employment, but cannot be decreased except under very limited circumstances

5. How Do We Determine Whether A Benefit Is Vested? Based on contract principles What is the contract? –Look at contract language MOU Personnel Rules Statutes Does contract give employees reasonable expectation that benefits may not be impaired? Any language explicitly giving employer right to modify benefit?

6. Vesting (continued) Current retirees –Generally vested and no impairments allowed –Only exception is if retired with benefit that allowed employer to make changes post- retirement (e.g., Government Code Section 31692) Future Employees –Generally not vested until employed

7. San Diego POA v. San Diego City Employees’ Retirement System (2009) 56 F.3d 725 Two Important Developments 1.The amount of Employer Paid Member Contributions (EPMC) paid by employer is not a vested benefit –Can be negotiated –Change may be imposed after meet and confer obligations and impasse procedures exhausted

8. San Diego POA v. San Diego City Employees’ Retirement System (2009) 56 F.3d 725 Two Important Developments 2.The retiree health benefits promised to current employees is not a vested benefit –Can be negotiated –Changes may be imposed after meet and confer obligations and impasse procedures are exhausted

9. San Diego POA v. San Diego City Employees’ Retirement System (cont.) Limitations and Caveats A.Case applies to represented employees subject to a negotiated collective bargaining agreement Likely applicable to unrepresented employees on EPMC issue Will it be extended to unrepresented employees regarding retiree medical portion? Not clear

10. San Diego POA v. San Diego City Employees’ Retirement System (cont.) Limitations and Caveats (continued) B.Case does not extend to retirement benefits such as monthly retirement benefits, retirement formula, etc. (But issue remains: Why is retiree medical different from a vested right standpoint?) C.There could be situations where specific contractual language does make these benefits vested D.PERS medical rules could reduce impact of case

11. San Diego POA v. San Diego City Employees’ Retirement System (cont.) Limitations and Caveats (continued) E.Case deals with City’s own pension plan, not PERS or a County System. This distinction should not be determinative. F.Case is new. Other courts may not agree as this is a departure from current California case law regarding retiree health. EPMC issues not as groundbreaking.

12. Is EPMC Vested? After San Diego, it clearly is not What if employer also reports EPMC as compensation? –Still not vested even though the reduction also reduces retirement benefits

13. Two-Tier Pension Plans Allowed in PERS Must meet and confer Only applies to employees hired after effective date PERL – Government Code Section 20475 provides additional restrictions

14. What Is A Time-in-Grade Exception? PERS allows employer to pay and report a lower level of EPMC for new hires for up to their first 5 years of employment Example: Current employees receive 8% EPMC New employees: Year 1 = 0% EPMC Year 2 = 2% EPMC Year 3 = 4% EPMC Year 4 = 6% EPMC Year 5 = 7% EPMC Year 6 and after = 8% EPMC

18. Thank you Steven M. Berliner sberliner@lcwlegal.com Doug Tokerud dtokerud@nicolayconsulting.com