San Jose lawmakers drop decision on top retirement officials’ plan

San Jose lawmakers on Tuesday dropped a proposal to boot executive employees working in the city’s Office of Retirement Services from the retirement plan that they directly work on.

City Manager Dave Sykes said some questions about the proposal need to be revisited and asked lawmakers to drop the item until a later date. It’s unclear when the proposal will be brought back to City Council.

As part of a thorough reform to clean up San Jose’s pension boards, Measure G reluctantly passed in 2014 with a little more than 50 percent of the vote. The measure gives the city’s two pension boards greater decision-making authority in hiring their own executive employees and investment staff who manage the citywide employee retirement fund.

To prevent a “conflict of interest,” those employees will be kicked off the nearly $5 billion retirement plan that they oversee, and instead be added to the state agency’s plan, CalPERS, according to Jennifer Schembri, the city’s director of employee relations.

“The thinking behind that was that it will be a conflict of interest for them to be part of the pension plans that they are running,” added Schembri. “So that’s what this does — it puts them into CalPERS. So there’s still no conflict of interest because they’re not in the same pension plan that they’re running, but they are going to be provided a defined benefit pension plan.”

Schembri said city officials were deliberating on three different plan options for these executive employees, before settling on CalPERS on a prospective basis back in March. Now the change in the ordinance will switch to CalPERS, making it the permanent choice for these employees.

The city has multiple retirement plans for all employees and elected officials. The type of plan an individual receives depends on that person’s start date, ranking and position, among other differences. The city’s “Tier 3” plan applies to executive employees and management but not all city employees — that’s the plan that executive employees working in the city’s Office of Retirement Services are being kicked off of.

A full time employee with a lower level, administrative position for example would most likely fall under the city’s “Tier 2” plan.

One of the main differences between the plans is whether the plan operates as a pension or an investment, such as a 401(k). Each determines the kinds of benefits an employee receives and what their contribution rate is. A contribution rate is money that is put towards an employee’s retirement fund.

In many government plans, an employee’s contribution rate is matched by the city. These rates are determined by percentages, and can vary. Currently “Tier 3” employees receive a 3.75 percent employee and city contribution rate, while a CalPERS plan offers a 7 percent employee rate and a 8.892 percent city rate.

The proposed changes affect five employees, but exempts the current chief executive officer, Roberto Peña, because he was hired before the measure was approved. The proposed ordinance does not apply to pension board members, as they are not city employees.

Employee reimbursement audit 

Also at Tuesday’s meeting, the council members unanimously approved the recommendations and findings of a city employee reimbursement audit, which highlights improvements to the city’s reimbursement process.

The audit detailed major flaws in the city’s process, including a misspent $24,000 in taxpayer funds when the city paid out the mileage costs of employees who were ineligible to receive such payouts because they violated a city policy. Employees who do not take a defensive driving course and receive a city driving permit cannot be eligible to drive a city vehicle, much less receive a reimbursement for driving-related expenses.

The report referenced nearly 7,000 transactions in 2018 that totaled $717,000 in employee reimbursements. Though most reimbursements have been steady within the last five years — from a low of $698,500 in 2014 to a high of $725,100 in 2015 – this year’s totals rose slightly above the previous year’s sum of $700,000.

“We found that in 2018, some city employees received mileage reimbursements even though they may not have had a city driving permit, a requirement under city policy for such expenses,” wrote city auditor Joe Rois. “In some cases, employees had not completed a required defensive driving training to receive the permit; in other cases the city’s tracking of employees who had completed the training was not accurate.”

In order to address these concerns, Julia Cooper, the city’s Director of Finance said her office was in the process of selecting a vendor for an electronic system that would simplify the approval process for employees to receive reimbursements and includes an “employee expense component.” According to Cooper, the current system is heavily paper-based and requires many signatures to authorize a smaller reimbursement. The electronic system will help expedite the process.

Cooper said the city is also working on moving towards an online driver training course for employees who need to obtain their city driving permit. Both recommendations will update and make the reimbursement system more efficient, city officials said.

“It will require us to do an update on a fair number of policies as we implement the electronic system,” added Cooper. “But we’re open for the change.”

Contact Nadia Lopez at [email protected] or follow @n_llopez on Twitter.