Title
Adoption of Resolution Approving Letter of Understanding between the City of Alameda and the Alameda Fire Chiefs Association to Clarify Retention/Longevity and Management Incentive Pay Memorandum Of Understanding Language for CalPERS Compensation Compliance. (Human Resources 10025060)
Body
To: Honorable Mayor and Members of the City Council
From: Jennifer Ott, City Manager
EXECUTIVE SUMMARY
The City of Alameda (City) contracts with the California Public Employees’ Retirement System (CalPERS) to provide a defined benefit plan for City retirees. When an employee from the City retires, CalPERS initiates review to determine the retiree’s monthly retirement benefit which is based on years of service and pay received while employed. Upon the recent retirement of a City Fire Division Chief, CalPERS initiated a service retirement review in January 2024. Upon review of the retiree’s payroll history, CalPERS determined that the Alameda Fire Chiefs Association (AFCA) Memorandum of Understanding’s (MOU) language on Retention/Longevity Pay lacked clarity on compounding pay levels, reducing the retiree’s final compensation, and that Management Incentive Pay (MIP) did not meet California Code of Regulations requirements. A denial letter was issued on April 23, 2024. Subsequently, the City, CalPERS, and AFCA collaborated on clarifying language, formalized in a side letter, now requiring Council adoption to allow a recalculated compensation review for the Division Chief, under the updated language. (Exhibit 1).
BACKGROUND
On January 25, 2024, the City was notified by CalPERS Compensation Compliance & Review Division of a service retirement review for a Division Chief covered under the AFCA MOU. The review period covers dates from December 1, 2020, through January 10, 2024.
To accurately complete the review, CalPERS requested clarification on several provisions within the MOU, specifically concerning the calculation method for Section 11.3 Retention/Longevity Pay and the compensability of special pay Management Incentive Pay, outlined in Section 11.1 of the AFCA MOU. CalPERS’ initial review of Section 11.3 revealed that the MOU language did not clearly describe the compounding nature of various levels, causing a discrepancy with what is reflected in the AFCA Salary Schedule. As a result, the final compensation calculation for the Division Chief was reduced.
Additionally, CalPERS’ review of Section 11.1 concluded that Management Incentive Pay does not meet the requirements set forth in the California Code of Regulations (CCR), specifically CCR 571 for "Classic" members and CCR 571.1 for "PEPRA" members. In a denial letter dated April 23, 2024, CalPERS stated that Retention/Longevity Pay and Management Incentive Pay do not comply with Government Code sections 20630 and 20636, as well as CCR Section 571, which limits special compensation to amounts received under a labor policy or agreement.
Following this notification, clarifying language was drafted, reviewed, and approved by both CalPERS and AFCA, and a side letter has been formalized. Pursuant to CalPERS' requirements, any labor policy or agreement changes to be used in calculating final compensation must be formally adopted by the governing body. Only upon approval, the City may request a new final compensation review for the Division Chief under the updated language.
DISCUSSION
In response to CalPERS’ January 25, 2024, notification of a service retirement review for a Division Chief, the Human Resources Department collaborated with CalPERS to clarify language in the AFCA MOU for two key special pays: Retention/Longevity Pay (Section 11.3) and Management Incentive Pay (MIP) (Section 11.1). The purpose of these revisions is to align the MOU with CalPERS’ reporting requirements to ensure that these special pays are included in final compensation calculations for eligible employees.
The issue with Section 11.3 Retention/Longevity Pay stems from its calculation method, intended to compound additional pay percentages at the 10, 15, and 20-year service levels. However, the existing MOU language lacks explicit references to compounding, which led CalPERS to interpret each level as an additional, non-compounding increase. As a result, CalPERS calculated the final compensation based on a simple addition of percentages, reducing annual reportable earnings by nearly four percent (4%). The revised language clarifies this compounding nature, ensuring accurate calculation in alignment with the current AFCA salary schedule. (Exhibit 2).
For Section 11.1 Management Incentive Pay, the current language inaccurately suggests an increase to base pay rather than additional pay calculated on base pay plus Retention/Longevity Pay. Additionally, it lacked clarity on eligibility criteria for the MIP levels, leading to questions about which employees qualify for each level. CalPERS’ review questioned the compensability of MIP, resulting in a denial of its inclusion in final compensation under Government Code sections 20630 and 20636 and CCR 571. The updated language specifies that all AFCA members qualify for MIP based on their roles, with levels assigned by position and duty area.
To ensure these special pays meet CalPERS’ requirements, the City worked with CalPERS and AFCA to draft, review, and finalize a side letter clarifying these provisions. Formal Council adoption of this updated MOU language is required to request a new final compensation review for the Division Chief, ensuring accurate retirement benefits for him and future eligible retirees.
ALTERNATIVES
• Adopt Resolution approving the Letter of Understanding between the City and AFCA to clarify Retention/Longevity and Management Incentive Pay MOU language for CalPERS compensation compliance.
• Do not adopt Resolution approving the Letter of Understanding between the City and AFCA to clarify Retention/Longevity and Management Incentive Pay MOU language for CalPERS compensation compliance.
FINANCIAL IMPACT
This action has no financial impact, as the Letter of Understanding solely clarifies existing language regarding the current calculation and payment of the special pays in question.
MUNICIPAL CODE/POLICY DOCUMENT CROSS REFERENCE
This action is consistent with Alameda Municipal Code, Government Code Sections 20630 and 20636, and California Code of Regulations §§ 571 and 571.1.
ENVIRONMENTAL REVIEW
This action does not constitute a “project” as defined in California Environmental Quality Act (CEQA) Guidelines Section 15378 and therefore no further CEQA analysis is required.
CLIMATE IMPACT
There are no identifiable climate impacts or climate action opportunities associated with the subject of this report.
RECOMMENDATION
Adopt a resolution approving Letter of Understanding between the City and the AFCA to clarify retention/longevity and management incentive pay MOU language for CalPERS compensation compliance.
Respectfully submitted,
Jessica Romeo, Human Resources Director
By,
Nafisah Ali, Senior Human Resources Analyst
Financial Impact section reviewed,
Margaret O’Brien, Finance Director
Exhibits:
1. Letter of Understanding
2. AFCA Salary Schedule