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: age Hired : Hired after 2003: defined benefit 65) & defined contribution (6% salary)  WASHINGTON 1. TIER 1: phasing out 2. TIER 2: TIER 3: 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 2 nd tier 60) prior to PEPRA said this hindered recruitment of qualified candidates  Morgan Hill (no 2 nd tier) had 3 candidates choose them over agencies with 2 nd tiers

 2011 National University Masters project survey  47.8%: 2 nd tier would have significant impact on decision to change employers  42.9%: 2 nd 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