Largest Palo Alto union gets new contract

SEIU workers agree on pension, medical contributions, but police managers' union balks at health care payments by retirees

City workers represented by Palo Alto's largest labor union will contribute more towards their pension and health care costs under a labor contract the City Council approved Monday night.

The contract between the city and the 580 employees represented by Service Employees International Union (SEIU), Local 521, is the latest step in the city's four-year effort to control rapidly rising pension and health care costs that are consuming a greater part of the city budget. The drive to curb these costs has been contentious in the past, particularly in 2009 when the city unilaterally imposed on the SEIU a contract that established a second pension tier for new employees, one based on a less generous formula.

The new contract, which the council voted 8-0 to adopt (Vice Mayor Greg Scharff was absent) includes further reforms, including a requirement that workers pay the entire "employee share" of their contribution to the California Public Employees' Retirement System. The "employee" contribution, which ranges between 7 percent and 8 percent of the salary, was formerly picked up entirely by the city. In exchange for the increased contributions, the city granted SEIU employees a cost-of-living increase of 1.65 percent. Also, pensions will also now be calculated based on the worker's three highest years of salary rather than on the single highest year, as has been the practice.

The new contract also requires the SEIU employees to contribute 10 percent toward health care costs, with the city paying the remaining 90 percent. In the past, the city absorbed the entire cost. It also eliminates one of the SEIU members' three floating holidays.

The contract was reached after 14 meetings between March and July 5. The union voted to ratify the tentative agreement on July 17, according to a report from the Human Services Department. In the report, staff commended the union and its bargaining team "for their focus and efforts in reaching an agreement on a successor Memorandum of Agreement with additional structural changes to employee compensation as the City continues to face budgetary challenges in this challenging economic environment." The report notes that the city's pension costs have tripled in the past decade and that its medical costs have more than doubled.

Mayor Yiaway Yeh praised the negotiation process, saying it "highlighted the ability of negotiations to unfold on a constructive timeframe."

"It shows that there was a lot of really good-faith discussions that occurred," Yeh said.

The agreement was particularly significant, Yeh said, because the SEIU is the city's largest labor group. The concessions in the new contract thus have a sizable impact on the city's budget.

The SEIU's acceptance of the city's proposed pension and health care reforms follows similar moves by Palo Alto's fire and police unions. Each labor group has signed new contracts in recent months that raises the employees' share of pension and health care contributions.

The city had less luck with the city's Police Managers Association, which is made up of two police captains and five lieutenants. The group agreed to most of the city's proposals, including its implementation of a second pension tier for new employees. Employees in this tier would fall under the "3 percent at 55" formula (3 percent of salary for every year served, with retirement at age 55) and the pension amount would be based on the average of three highest year. Current employees would keep the existing "3 percent at 50" formula, and their pensions would continue to be based on the single highest year. Police managers also agreed to have active employees contribute 10 percent toward health care costs.

But the sides hit an impasse when it came to health care contributions for retirees. Much like the Palo Alto Police Officers Association, which represents most of the officers in the department, the managers rejected the city's attempt to have retirees pay 10 percent of their medical costs. Unlike the larger police union, the managers group did not request that the city proceed with a fact-finding procedure to resolve the issue in dispute.

With the managers union not moving on the issue of retirees' health care contributions, the City Council on Monday voted 8-0, with Scharff absent, to impose these conditions unilaterally. Employee Relations Manager Marcie Scott said the contract will impose the same types of reforms that other unions, including the SEIU and the firefighters, had recently accepted. Officials noted in the report that the police managers group issued several proposals but that none of these proposals required retirees to pay for health care.

"The City rejected those proposals on the basis that the City seeks a consistent and equitable approach to structural change in the retiree medical benefit and exempting one unit of highly paid managers from modest cost share does not meet the City's philosophical or economic goals," Human Resources Director Kathryn Shen's report stated.

Though Councilman Greg Schmid called it "unfortunate" that the city wasn't able to agree on every issue with the police managers group, he agreed that the city should go forward with imposing the conditions. The city and the union have already met 28 times but could not reach an agreement.


Posted by mark tomlinson, a resident of Midtown
on Jul 25, 2012 at 6:55 am

According to the 'Rule of 9s,' 99 % of the time, police arrive AFTER a crime has been committed, too late to stop a crime and too late to apprehend the perpetrator. And our Firemen spend most of their time admiring their equipment or working on their physique. Even after the recent 'concessions and negotiations,' Police and Firemen are way overpaid and their benefits are still exorbitant. Local elected officials have been no match for the Professional union negotiators who have ripped off the citizens, the city and the state for decades. None of these cops or firemen would earn half what they are paid by the city if forced to work in business. There are no pay or benefit packages anywhere in the business world like the ridiculous pay and benefits the city hands out to greedy public serpents. The City and its employees should be ashamed of their greed.

Posted by Peter Carpenter, a resident of Atherton
on Jul 25, 2012 at 7:27 am

Peter Carpenter is a registered user.

It is a delusion to call this progress.

They still have a defined benefit pension with the TAXPAYERS picking up any shortfall.

The city should have negotiated for a conversion to a defined benefit program for all future pension benefits.

Posted by Michael, a resident of Downtown North
on Jul 25, 2012 at 9:20 am

I think the only way this will ever get fixed is a citizens initiative forbidding the city from agreeing to any contract with a defined benefit pension (or perhaps capping the defined benefit in any agreed contract to the max social security payout).

The city council doesn't have the spine to protect taxpayers and future generations from today's unions.

Posted by Wayne Martin, a resident of Fairmeadow
on Jul 25, 2012 at 9:33 am

> Much like the Palo Alto Police Officers Association, which
> represents most of the officers in the department, the managers
> rejected the city's attempt to have retirees pay 10 percent of their
> medical costs.

So how much money is involved here?

We'd have to ask HR for a complete list of Police retirees, but this list—sourced from CalPERS (via provides information on those seeing payouts over $100K—

Brown, Sandra C City of Palo Alto $10,252.66 $123,031.92
Durkin, Christopher T City of Palo Alto $9,602.49 $115,229.88
Johnson, Lynne E City of Palo Alto $15,450.65 $185,407.80
Wong, Scott T City of Palo Alto $11,762.97 $141,155.64
Yore, Michael T City of Palo Alto $10,194.33 $122,331.96
Zook, Bradley H City of Palo Alto $9,326.31 $111,915.72

So, why shouldn't folks seeing pensions like this not be expected to pay for some of their post-retirement healthcare?

Posted by David Pepperdine, a resident of Another Palo Alto neighborhood
on Jul 25, 2012 at 11:18 am

Pensions should end. Replace them with a 401(k) style defined contribution program in which the city's contributions depend on the city's fiscal health.

The Police Manager's Association is totally out of line in their demands. These people should be let go.

Posted by Steve, a resident of Menlo Park
on Jul 25, 2012 at 11:45 am

David -
Pensions should end and be replaced with 401(K) style plans??
Are you nuts! 401(K) retirement plans have proved to be a big failure. Why dump more people in a plan that has failed to meet the retirement needs of employees? Pensions may need modifications to bring them in line with current fiscal constraints - as the city and employee unions have just done - but to dump them in favor of a demonstrably failed system is crazy.
You don't happen to work for Merrill Lynch or Morgan Stanley do you? They're the ones who have benefited the most from having Americans' 401(K) savings to play with. They get 1 to 2 % off the top, regardless of whether or not they make money for the poor working stiff.
Don't you remember that when 401(k) plans came on the scene in the early 1980s, they were viewed mainly as supplements to employer-funded pension and profit-sharing plans. They were never intended to replace these other retirement funds. Now, after 30 years of increasingly relying on 401(K) we find that 75% of Americans nearing retirement age in 2010 had less than $30,000 in their retirement accounts. The 401(K) plans are clearly failing to provide a decent retirement for the majority of Americans - why add 6 million more public employees to the problem?
As an opinion piece in the NYT Saturday pointed out:
"This do-it-yourself [401(K)] pension system has failed. It has failed because it expects individuals without investment expertise to reap the same results as professional investors and money managers. What results would you expect if you were asked to pull your own teeth or do your own electrical wiring?" Web Link
This is a very good article that should make everyone advocating the elimination of pensions reconsider their positions.

Posted by Steve, a resident of Menlo Park
on Jul 25, 2012 at 11:56 am

Today's NYT's blog discusses alternatives to the 401(K) retirement system. It's titled "So much for the 401(K). Now What?"
Check it out at Web Link

Posted by lazlo, a resident of Old Palo Alto
on Jul 25, 2012 at 12:47 pm

...same repetitious posts, same people posting them. Life should be fun and not spent posting comments to your fanbase. It's a glorious day out, the sun is shining, birds are singing, and you sit in your cubicle hoping to convert disillusioned souls. What a pity!

Posted by musical, a resident of Palo Verde
on Jul 25, 2012 at 1:13 pm

Today's NYT blog? That last web link is March 25, 2009, exactly the lowest day of the market crash. The "Now what" at that point was definately NOT to bail out. My only reservation about a 401k is that you pay a higher income tax rate withdrawing it than you defer while depositing it. And any long term capital gains in a 401k are taxed as ordinary income even though it barely keeps you up with inflation.

The NYT opinion piece (previous link) was run-of-the-mill fear mongering. The truth is the average investment professional underperforms the market, so anyone can do better on their own with index funds.

Posted by Steve, a resident of Menlo Park
on Jul 25, 2012 at 2:00 pm

Musical -
You're right about the date on the NTY blog - my mistake. However, the discussion still seems very pertinent three years on with many of the same criticisms of the 401(K) system as I mentioned.
You claim that "The truth is the average investment professional underperforms the market, so anyone can do better on their own with index funds."
But most people don't even know what an index fund is, let alone how to invest their 401(K) money into one.
That's one reason why 75% of Americans close to retirement have less than $30K in their retirement accounts.
That's one reason why workers' confidence that they'll have enough money to live comfortably through their retirement years has fallen from 73% in 1993 to 52% today Web Link
Problems with the 401(k) system are endemic. Fees are too high and returns, on average, are too low: "The National Institute on Retirement Security estimates that administering the average defined benefit plan, or traditional pension, costs 46 percent less than a typical 401(k) to provide the same benefit level in retirement, largely because of the higher fees and lower investment returns of 401(k)s and the ability of defined benefit plans to pool risk." Web Link
Most workers are too uneducated in matters of investing to even know this or what do do about it. Heck, most employers are too uneducated on such matters to make sure their employees are even being offered good investment options.
Moving employees to 401(k) plans back in the 1980's & 1990's was a big mistake that needs to be rectified, though it's probably too late for most workers in their 50's.

Posted by Wha?, a resident of Another Palo Alto neighborhood
on Jul 25, 2012 at 2:18 pm

Isn't Social Security paid with tax payer money? How dare those old people ask us who are struggling to keep a job and feed our families to pay their way? The nerve!

Get over it people, and find a way to pay the debt incurred.

Banks and bad lending practices, combined with people like Madoff (who offered a great return on the dollar to everyone) have brought on the failing economy. Focus on the culprits, not the scapegoats. I know you are smart enough to do that.

Posted by Anna, a resident of Midtown
on Jul 25, 2012 at 2:32 pm

Too many public sector takers on gold plated pensions, paid for by not enough private sector makers on 401Ks. Neither sustainable nor fair.

Outsource them all and vote out the politicians who continue to roll over for the unions. It will take a prop 13 like voter revolt to finally put a stop to the gravy train, but it's already underway now that the extent of the public sector benefit and pension bloat is becoming known. The votes in SD and SJ show that the public has had enough.

Posted by Ex-employee, a resident of another community
on Jul 25, 2012 at 7:36 pm


Those are big numbers you posted.

Do you know the average pension of retired PA employees?

$27,816 a year. With a little over 900 retired that means there are quite a few making much less to balance out the $100k and above group. It's a shame that only a fraction of the real numbers are presented.

Posted by Ryan S., a resident of College Terrace
on Jul 25, 2012 at 8:15 pm

Ex Employee is using the statistical manipulation that unions like to employ.

The $27,816 figure is deceptively small, because it encompasses every employee, even those that worked only a few years and retired with a small pension. The average pension for those who work the full 30 years (and retire at 50 or 60 -- very early by private sector working standards) is much, much higher.

Posted by Ryan S., a resident of College Terrace
on Jul 25, 2012 at 8:17 pm

"Too many public sector takers on gold plated pensions, paid for by not enough private sector makers on 401Ks."

Anna summed up perfectly what is plaguing not only in Palo Alto but the entire country.

Posted by Peter Carpenter, a resident of Atherton
on Jul 25, 2012 at 9:21 pm

Peter Carpenter is a registered user.

This is the way that public employee contracts should be negotiated - with the opportunity for public input BEFORE the process begins:

The Menlo Park Fire Protection District (MPFPD) and the Menlo Park Firefighters Association, District 10 of I.A.F.F., Local 2400 are working together as partners to make positive changes and improvements which will benefit the firefighters, the District and the Community that we serve. With that commitment in mind, the District has developed a draft Memorandum of Understanding (MOU) as a starting point to return to the bargaining table. As part of the Fire Board's transparency policy to the community and their employee's , this draft MOU, along with related communications, and compensation packages have been posted to the District's web-site @ Web Link

Posted by Wayne Martin, a resident of Fairmeadow
on Jul 26, 2012 at 8:13 am

> Average retirement for PA retirees--$27,816 a year.

Maybe. Care to cite your source?

CalPERS offers this data:

Web Link

All Retirees: ~$27,000
2010-11 Retirees: ~$37,000

The problem that we are facing is not so much the folks with the $27K pensions, it's the people who are retiring now, and in the future. There seems to be a real blind spot with public sector retirees on this point. These pension payouts are beginning to skyrocket.

No one is suggesting that the current retirees have their pensions reduced. We are saying that when pensions are routinely over $100K society will not be able to sustain the taxes needed to pay these pensions.

Currently, there are about 450 people employed by the City of Palo Alto who make over $100K. Public safety people are drifting into the $200K zone. There are another couple hundred who are in the 75K to 99K zone, that will soon be drawing $100K+ salaries. The concerns we are voicing is over these peoples' unrealistic demands for more money in their retirement years (drive by COLAs) than they made during their working years.

The posting was of police management (more-or-less). It seems that they are some of the highest paid people on the payroll, and seem to not want to pay for their post-retirement health care, or at least some portion of it.

Posted by Wayne Martin, a resident of Another Palo Alto neighborhood
on Jul 26, 2012 at 8:32 am

From time-to-time, some posters (presumably public sector employees/retirees) have suggested that those of us concerned about public sector pensions are "jealous" .. and we should be trying to get pensions for ourselves like they have. Given that most of the public sector types are unionized, it's not surprising that they would make claims like this, but it when they do it becomes clear how clueless they are about the underlying financial model that is necessary to sustain their vision of a fully "unionized" world.

For instance, the SSA (Social Security Administration) claims that there are around 50M people who are "retired" (or at least drawing SS). Presumably this number will increase, over time—so let's look at a simple model of what it costs to write the checks for these people every year if they were getting public sector pensions--

Retirees: ~50M
2012 GDP: ~$15T

Yearly Payout: $50K
Cost: ~2.5T
% of GDP: 16.7%

Yearly Payout: $75K
Cost: ~$3.75T
% of GDP: 25%

Yearly Payout: $100K
Cost: ~$5T
% of GDP: 33.3%

Now .. the payouts from Social Security are a lot less than those of public sector retirees (SS is not a pension system), so the payouts and % of GDP are lower. But if we look forward to the ballooning costs of public sector retiree pension obligations (there are now more people working in the public sector than in the manufacturing sector)—the numbers above become somewhat realistic, and certainly concerning, as there are no caps to salaries in the public sector. As these salaries grow, and grow, so do the obligations of linked pensions.

The idea that everyone should have a pension as lucrative as a public sector pension shows a level of ignorance of public financing that staggers the imagination.

Posted by musical, a resident of Palo Verde
on Jul 26, 2012 at 1:54 pm

>> "SS is not a pension system"

Sure looks like a pension to me... Most definitions I find look like --

noun, (1): a fixed amount, other than wages, paid at regular intervals to a person or to the person's surviving dependents in consideration of past services, age, merit, poverty, injury or loss sustained, etc.

Posted by Wayne Martin, a resident of Fairmeadow
on Jul 26, 2012 at 2:19 pm

> paid at regular intervals to a person or to the person's
> surviving dependents in consideration of past services

This point about "in consideration of past services" does not apply to SS, being one of the main differences between the two systems.

Definition of 'Social Security'

A United States federal program of social insurance and benefits developed in 1935. The Social Security program's benefits include retirement income, disability income, Medicare and Medicaid, and death and survivorship benefits. Social Security is one of the largest government programs in the world, paying out hundreds of billions of dollars per year.

Read more: Web Link

The definition of SS seems to be buried in Roosevelt's New Deal, rather than the reasons that pensions are offered.

Posted by musical, a resident of Palo Verde
on Jul 26, 2012 at 3:05 pm

My SS check will be in direct consideration of my highest 35 years of past services.

Posted by Wayne Martin, a resident of Fairmeadow
on Jul 26, 2012 at 3:13 pm

> My SS check will be in direct consideration of my highest
> 35 years of past services.

Be that as it may, these are very different systems. Pensions have often been offered as a consideration of employment, not requiring any contributions on the part of the employee. SS requires employee contributions.

Pensions have for the longest time been offered by the company, and not backstopped by the taxpayers--as is SS. Pensions are considered "contractual", which is not the case (as I understand it) with SS. SS makes not promises about the year payouts. If Congress wants to reduce the payouts, then it can do it. Pension funds sometimes go broke, and the pensioners lose out. Not so with SS (or at least not yet).

SS seems to liked to the fuzzy notion of "social insurance", rather than something closer to deferred salary, or a benefit of employment.

Pensions can be "cashed out", and the rights to a vested pension can be sold. Not so for SS.

There are no doubt many other legal differences. These are just a few that come to mind.

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