Employee Page for CalPERS Pension Contract Amendment
Background: The current Management and Professional Compensation Plan states that all employees will contribute an additional 1% of their salary towards the Employer Share of Pension - this 1% will be implemented in two 0.5% phases.
Steps to accomplish a pre-tax deduction option for employees:
- CalPERS requires acknowledgment signatures from a simple majority of the Management and Professional group in order for the City to initiate the contract amendment process. A request for acknowledgment was sent to the Management employee group on 1/24/18, via DocuSign. We received enough signatures within a few hours of the request being sent out - Thank you all for your prompt response!
- The CalPERS contract amendment will go before Council as a Resolution of Intention scheduled for 3/12/18.
- An employee vote to accept the pre-tax method for the additional half-percent (0.5%) contribution will be held during the week of 3/12/18.
- The CalPERS contract amendment will then return before Council for a Second/Final reading of the Ordinance scheduled for 4/2/18.
- We anticipate that the amendment process will be completed by May 2018 and the deductions will go in to effect beginning with pay date 6/1/2018.
Benefits of Amending the CalPERS Pension contract:
1) Amending the pension contract allows for the additional contributions to be recognized as a part of the pension plan which allows these additional contributions to be deducted pre-tax.
A pre-tax deduction refers to money deducted from an employee’s paycheck without any taxes being deducted from that money. As a result, the employee is paying tax on a smaller amount of money, since the deductions are made before the calculation of the tax being withheld.
For example: A 0.5% deduction from an employee with a $100,000 annual salary is approximately $19.23 per paycheck. If this deduction is applied pre-tax then your taxable income is reduced by $19.23. Otherwise, the $19.23 would be subject to an additional $5.19 Federal & State taxes (assuming a 27% tax bracket).
2) Amending the pension contract allows CalPERS to give the dollar amount credit for the contribution to the employee. Employee contributions can be cashed out by the employee if he/she elects not to receive their pension. Additionally, employee contributions are used in calculating the death benefit.