Recruitment and Retention of Public

Employees After PEPRA

2013 Santa Clara County

Leadership Academy

Margarita Balagso

Julie Behzad

Joe Chavez

Karen Levy

Melissa Maglio

Judy Saunders

Melissa Tronquet

The Challenge PEPRA (CA 2013) created lower tier benefits for

employees new to CalPERS

QUESTION: Will this create recruiting & retention problems for the public sector?

If so, how can we mitigate this problem?

Public Employees’ Pension Reform Act (PEPRA)

Effective January 1, 2013

Lower retirement formula/higher retirement age for new employees

Cap on pensionable salary for new employees (currently $135,000 vs. $225,000 for classic employees)

“New” employees are those with no prior CalPERS service or those with a break in service 6+ months

Reviewed provisions of PEPRA

Interviewed Washington & Oregon about their pension reform:

1. Counties

2. Cities

3. Both States

Researched similar studies

Interviewed benefit expert

Research Methodology

Pension Reform in Other States

OREGON

1. Pre-1996 hires: 1.67% @ age 58

2. Hired 1996-2003: 1.5%@ 60

3. Hired after 2003: defined benefit (1.5% @ 65) & defined contribution (6% salary)

WASHINGTON1. TIER 1: phasing out

2. TIER 2: 2% @ 65

3. TIER 3: 1% @ 65 + defined contribution plan with employee contribution (5-15% salary, based on age & employee choice)

Washington State’s Experience

King & Pierce Counties & State

No impacts to recruitment or retention

Pension “It is what it is.”

Oregon’s Experience Clackamas County, cities of Hillsboro,

Albany & Salem & State

No clear impacts to recruitment or retention

Some agencies use incentives to attract highly qualified candidates

Hard to compete for some jobs due to inflexibility

California Experience Too soon to tell

Current employees less likely to move to agency that adopted a second tier prior to PEPRA

Cupertino & Saratoga adopted 2nd tier (2% @ 60) prior to PEPRA said this hindered recruitment of qualified candidates

Morgan Hill (no 2nd tier) had 3 candidates choose them over agencies with 2nd tiers

2011 National University Masters project survey

47.8%: 2nd tier would have significant impact on decision to change employers

42.9%: 2nd tier would have some impact on promotion decision

More experienced employees more likely to give significant consideration to pension formula

Employees who are not happy in current jobs less likely to care about a less generous retirement package

Do CA Employees Care?

Findings Little impact on employees new to

CalPERS

Greatest impact on current employees moving to agencies with existing 3-tier system

Difficulties in hiring from private sector involve other factors

Recommendations Track recruitment & retention for affects of

PEPRA

Offer 401(a) deferred compensation plan to supplement lower defined benefit pension formulas

Change culture to make public sector workplaces more modern & flexible

“Sell” public service as recruitment tool

401(a) Plans Solution if needed to offset affect

of reduced pensions

Allow employer & pre-tax contributions for employees

Higher cap than 457 plans; may be implemented in addition to 457 plans

Significant flexibility in structuring a 401(a) plan

Changes in the Workplace Public sector work is interesting, rewarding &

satisfying!

Serving the community is important; leverage this to attract smart, dynamic people:

ASSIGNMENTS: rotational, interdepartmental, diverse &/or high impact

EMPLOYEE: Interested; avoids being in a ‘rut’

EMPLOYER: Builds skills & develops internal talent

Keeping Good Employees Options:

Part time work or job sharing Flexible schedule Telecommuting for appropriate positions

More diverse range of benefits that better align with different generations

EXAMPLE: salary, retiree health/pension benefits more attractive to younger employees

Summary

WA & OR report pension reform may not have substantial impact

Monitor California for potential future problems

Change culture/working conditions

Promote benefits of public service

Solution: 401(a) plan tailored to mitigate specific needs & concerns