1. 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

2. 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?

3. 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

4.  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

5. 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)  WASHINGTON 1. 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)

6. Washington State’s Experience  King & Pierce Counties & State  No impacts to recruitment or retention  Pension “It is what it is.”

7. 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

8. 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 (2% @ 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

9.  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?

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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