Last year the retirement formula at Palo Alto City Hall was changed. As a result of that change, a city employee retiring at 55 with 30 years service making $100,000 a year will get $81,000 a year instead of the $60,000 he would have gotten two years ago or the $43,800 annual pension nine years ago. That is a huge jump.
And now we learn that two more Palo Alto city officials are retiring, bringing the total at city hall the last couple of months to four. All four are under 60. In fact, two are 55 (Carl Yeats, director of administrative services and Phil Plymale, head of the union’s negotiating team) while Richard James, director of the Community Services Department is 57.City Manager Frank Benest will retire next June at age 59.
All of them will receive hefty pensions, thanks in large part to negotiations that three of them participated in – directly and indirectly.
Yeats and Plymale negotiated a contract last year that provided a 35 percent increase in pension benefits at age 55. Both retired this year at age 55. Benest presented the contract terms to the city council and they were approved; James is benefiting from the agreement.
That increase is astounding. I am amazed the council agreed to it.
The formula and numbers are a bit difficult to comprehend.
Prior to 1998, the “2 percent at 60” schedule was used. That meant that a retiree would get 2 percent of his highest annual salary times the number of years worked in city government as his annual lifetime pension. If he worked until age 64, he would get 2.4 percent.
In 1998, a “2 percent at 55 schedule” was approved. This schedule provided no additional benefits for employees who were 63 or older when they retired. Then-City Manager June Fleming and HR Director Jay Rounds, the city's negotiators, were over 63, so there was no conflict of interest in their negotiating the contract, since they would not personally benefit. For a 55-year-old employee earning $100,000 with 30 years the pension went from $43,800 to $60,000 a year.
Last year, the benefit was increased for a second time by adopting the”2.7 percent at 55 schedule.” This means that a 55-year-old earning $100,000 with 30 years would now get a pension of $81,000.
The increase is almost double from what it was nine years ago. And we all know what the union gets, management at city hall also benefits from.
Not too shabby. Especially considering nothing in the job or job responsibilities have changed.
All this makes me feel uncomfortable. First, the “2.7 percent at 55” schedule encourages people to retire early, and once they retire we pay them lifetime pensions and health benefits. That doesn’t happen in private industry. Second, I think there is an inherent conflict of interest when the negotiators stand to directly benefit. Obviously the city’s negotiating team profited from this revised retirement benefit.
Some cities hire a team of outside lawyers to negotiate a contract with the union. That hasn’t happened in Palo Alto.
It looks like there are a lot of winners in this new game of get-what-you-can-for-your-pension. And those winners are walking out the door.