Stanislaus County’s pension reforms could be hindrance in recruiting the next CEO

Stanislaus County was a leader in reducing public employee pensions that have been a major contributor to government budget deficits in California.

Faced with rising costs of funding pension benefits for employees seven years ago, the county negotiated agreements with labor groups that created less-lucrative benefits for new employees hired on or after Jan. 1, 2011.

But those reforms now hamstring the county when the Sheriff’s Department tries to hire peace officers from other agencies. It makes it more difficult to hire qualified professionals to manage county departments or hire the next chief executive officer for Stanislaus County, officials said.

“They are being punished for trying to be fiscally sound,” said Rick Santos, executive director of the Stanislaus County Employees’ Retirement Association, the pension administrator for employees of the county, Ceres and some special districts.

Public employee pension benefits are rather complex, and to understand how the county is penalized requires some careful thought.

Stanislaus was more aggressive than other counties in cutting back on generous pension benefits, which seven years ago were putting a strain on the county’s budget. In 2010, when the county faced a $22 million increase in its obligation to StanCERA, county officials decided the next generation of county employees would have lesser retirements. The more generous benefits for existing employees were left in place.

The newer benefits, for employees hired on or after Jan. 1, 2011, are expected to reduce taxpayer costs over time.

At the same time, the state was reeling from bad news about public employee pensions, including benefit costs that drove the city of Vallejo into bankruptcy and public outrage over six-figure annual retirement pay for retired public workers.

In September 2012, Gov. Jerry Brown signed the Public Employees’ Pension Reform Act, which instituted new pension rules statewide.

Counties in California were required to fall in line with the state’s PEPRA reforms, which established limits on benefits and rules to prevent pension spiking, and created less-costly benefit formulas for new employees hired on or after Jan. 1, 2013.

The state law included provisions for seasoned county and city employees who accept jobs with other agencies. Rather than give them the cheaper benefits for new employees, those people are entitled to the pension benefits the new employer had available on or before Dec. 31, 2012, just before PEPRA went into effect.

Because most counties waited for the PEPRA reforms, they had more lucrative benefits in place in December 2012. Stanislaus County, however, had its newer benefits in effect at that time. Experienced employees transferring from other counties to Stanislaus are faced with taking a cut in benefits.

So they turn their noses at job offers from Stanislaus County.

“My hope is that it has no effect,” county Supervisor Vito Chiesa said, “but my fear is it has a detrimental affect.”

Public safety pensions

As an example, Ceres did not adopt pension reforms before PEPRA. A Ceres police officer with the coveted “3-percent-at-50” retirement benefit for safety employees would have to give that up to work for the Stanislaus County Sheriff’s Department. And who would? In many cases, the “3-at-50” benefit has allowed peace officers to retire at age 50 with 90 percent of their final salary.

Under the PEPRA rules, Stanislaus County deputies with “3-at-50” can keep the prized benefit if they to transfer to the smaller Ceres department or other counties.

Stanislaus Sheriff Adam Christianson said he tried without success to hire a couple of Ceres officers, who had the 3-at-50 benefit through StanCERA. “They were told it would not transfer,” Christianson said. “They would be hired at the new tier.”

Christianson said the Sheriff’s Department does not attract many well-qualified peace officers from other agencies, but primarily hires brand-new deputies with no experience who can meet the department’s rigorous standards.

Peace officers with prior experience “look very closely at the salary and benefit package,” Christianson said. “We are not the highest-paid department in the Central Valley and the other issue is pension reform.”

Effective Jan. 1, 2011, Stanislaus County reinstated a previous benefit tier for newly hired general employees with a projected 27 percent cost savings for the county over the long term. The employee’s salary for the purpose of calculating pension was based on a three-year average, rather than the highest annual salary.

A large number of county employees still have the enhanced benefit implemented in 2002 that has resulted in six-figure retirements for former top managers.

CEO recruitment

The county will soon begin recruiting for a CEO to succeed Stan Risen, who will retire in August. It expects to recruit statewide for a top executive who understands the complexities of government funding and regulations in California.

Chiesa said a strong candidate for the CEO’s job will most likely have substantial retirement benefits from another county or city, and would have to take a benefit cut to work for Stanislaus.

“It is a real recruitment problem for us,” Supervisor Terry Withrow said. “If we are hiring from within we are fine. But with a transfer from another county, they are going to look at what we have and see it as a pay cut.”

Can anything be done about the pension reform penalty? Assistant County Executive Officer Jody Hayes said the county is researching the question. There doesn’t seem to be support in county leadership for restoring the older benefit formulas. A possible solution could involve wiggling out of the benefit transfer rules in PEPRA, so an employee coming from another county could be offered a better retirement.

It’s possible the county could look for a legislative solution.

Supervisor Jim DeMartini, a pension-reform hawk on the Board of Supervisors, said the more lucrative benefits are not coming back. “These are overgenerous government benefits,” DeMartini said. “They are retirements that no one in the private sector gets. It was unreasonable to continue with retirement benefits at that higher level.”

If a finalist for the CEO’s job is faced with a benefit cut, DeMartini said, the county could sweeten the deal with higher monetary compensation.

Chiesa said the county counsel is looking at the PEPRA issues and it may come down to an interpretation of law.

Hayes said the negative impact on the county’s ability to hire qualified employees will diminish as time passes. Five to six years from now, more public employees will have the PEPRA-level benefits and won’t have their retirement docked if they take a job with Stanislaus County.

“This will phase out over time,” Withrow said.

This story was originally published March 4, 2017 at 4:25 PM with the headline "Stanislaus County’s pension reforms could be hindrance in recruiting the next CEO."