#17 D. Grand Jury Report PensionersG v BUR
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Honorable Gilbert Wong
Mayor
City of Cupertino
10300 Torre Avenue
Cupertino, CA 95014 -3232
ATTACHMENT D
June 16, 2011 a Ip V
Dear Mayor Wong and Members of the City Council:
The 2010 -2011 Santa Clara County Civil Grand Jury is transmitting to you its Final Report,
Rehiring of Pensioners: Bad Policy, Good Business or Both ?.
California Penal Code § 933(c) requires that a governing body of the particular public agency or
department which has been the subject of a Grand Jury final report shall respond within 90— _ days to the
Presiding Judge of the Superior Court on the findings and recommendations pertaining to matters under
the control of the governing body. California Penal Code § 933.05. contains guidelines for responses to
Grand Jury findings and recommendations and is attached to this letter.
PLEASE NOTE:
1. As stated in Penal Code § 933.05(a), attached, you are required to "Agree" or "Disagree" with
each APPLICABLE Finding(s) 1 & 3 . If you disagree, in whole or part, you must include an
explanation of the reasons you disagree.
2. As stated in Penal Code § 933.05(b), attached, you are required to respond to each
APPLICABLE Recommendation(s) L& 3 , with one of four possible actions.
Your comments are due in the office of the Honorable Richard J. Loftus, Jr., Presiding Judge, Santa
Clara County Superior Court, 191 North First Street, San Jose, CA 95113, no later than
Monday, September 19, 2011.
Copies of all responses shall be placed on file with the Clerk of the Court.
Sincerely,
HELENS 1. POPENHAGER
Foreperson
2010 -2011 Civil Grand Jury
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Enclosures (2)
cc: Mr. David Knapp, City Manager, City of Cupertino
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COPY
California Penal Code Section 933.05, in relevant part:
933.05. (a) For purposes of subdivision (b) of Section 933, as to each grand jury finding,
. the responding person or entity shall indicate one of the following:
(1) The respondent agrees with the finding.
(2) The respondent disagrees wholly or partially with the finding, in which case the
response shall specify the portion of the finding that is disputed and shall include an
explanation of the reasons therefor.
(b) For purposes of subdivision (b) of Section 933, as to each grand jury
recommendation, the responding person or entity shall report one of the following
actions.
(1) The recommendation has been implemented, with a summary regarding
the implemented action.
(2) The recommendation has not yet been implemented, but will be
implemented in the future, with a time frame for implementation.
(3) The recommendation requires further analysis, with an explanation
and the scope and parameters of an analysis or study, and a time
frame for the matter to be prepared for discussion by the officer or
head of the agency or department being investigated or reviewed,
including the governing body of the public agency when applicable_
This timeframe shall not exceed six months from the date of
publication of the grand jury report.
(4) The recommendation will not be implemented because it is not
warranted or is not reasonable, with an explanation therefor.
ENDORSED)
Him 2010 -2011 SANTA CLARA COUNTY i L E
CIVIL GRAND JURY REPORT JUN 16 2011
DAVID H. YAMASAKI
Chief Execuilva C cer /Clerk,
Superior Court of CA County of Santa Clara
By— 1Jd1ffCKL_ �}
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REHIRIN OF PENS IONERS:
BAD POLICY, GOOD BUSINESS OR BOTH?
Summary
Recently reported public perception would suggest that municipalities engage in the
practice of hiring numerous double dippers --- persons who collect a government pension
and concurrently receive government salarylpayment for work. Further, public
perception seems to be that this is a bad and costly practice and is a barrier to
employment opportunities for new candidates. The Grand Jury sought to understand
how Santa Clara County (SCC) and the fifteen SCC cities approach rehiring retirees,
the number of rehired pensioners (RHPs) presently on payroll, and the pros and cons of
this practice.
The Grand Jury found that all cities and SCC rehire retirees, but in very small numbers
relative to the total number of employees: of nearly 26,000 employees countywide,
- -1.6 %, or 404, are RHPs who work, on average, nine hours /week. Cities and SCC limit
rehired retirees to 960 hours in a fiscal year, which is less than half -time. In Grand Jury
interviews, Human Resources (HR) managers outlined the costs of hiring a regular full -
or part -time employee versus rehiring retirees and the advantages and disadvantages
of this practice.
The Grand Jury found one case of possible abuse. Otherwise, rehiring retirees appears
to be a prudent way to secure highly skilled talent for short -term tasks at a relatively low
cost to economically strapped municipalities and does not in itself appear to be a barrier
to hiring new workers.
Background
Santa Clara County and all of its fifteen cities rehire pensioners. Table 1 shows the
data for the present fiscal year, July 2010 -- June 2011. In all cases, year -to -date (YTD)
numbers reflect fiscal year to date. The percent of RHPs as a function of total persons
employed in the county ranges from 0 to 7.33% of total employees, and is just 1.55%
countywide. Based on a 40 -hour workweek, each RHP, on average, accounts for less
than one - quarter of a full -time employee, working a countywide average of nine
hours /weep.
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Table 1: Countywide survey of public sector agencies shows the number of rehired
pensioners compared to full-time
Methodology
The Grand Jury interviewed SCG HR, finance and benefits managers, as well as a
sampling of HR managers of large, medium and small population cities, to determine
the HR practices of rehiring pensioners. The Grand Jury also surveyed all HR
managers to gather specific data on the subject.
Discussion
All HR Directors /Managers interviewed confirmed they rehire a limited number of RHPs
for various reasons as noted below:
Continuity of service, such as in the following situations:
- When a retiree provides very short notice of retirement (e.g., a
family emergency), to allow time to recruit or succession plan
- Until replacement is hired or fully trained
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e Training, such as in the following situations:.
When lack of time or union rules prevent transition training of a new
hire from occurring prior to the departing individual's last day.
When remaining employees need to learn a job- specific concept or
procedure that is well known by the retiree.
0 Specific- knowledge or time - dependent projects, such as for the following:
- Where an IT system being phased out has not been fully retired.
No need to recruit, hire and train on a system that will not be in use,
but needs to stay running until the new system is in place.
- Where a detective is retired, but a case they investigated is now
coming up for trial.
- To complete a project started prior to retirement
- Financial reports, with a short and urgent timeframe and that
require very specific knowledge to complete.
- To complete a short—term assignment or project that a retiree can
perform quickly because their knowledge allows them to "hit the
ground running" and /or is short enough duration that it does not
warrant hiring a full- or part-time employee.
® Seasonal, part-time work (e.g., librarians, parks and recreation lifeguards)
Limitations on Rehiring Pensioners
The two pension plan providers to the cities and SCC, California Public Employees
Retirement System (CaIPERS) and the Federated Cities Retirement System, require
contributions to the pension fund to resume if a rehired retiree works more than 960
hours in a fiscal year. To avoid this expense, all agencies limit RHPs to 960 hours per
year if they return to work for an agency that 'h as the same pension plan as the retiree's
plan. San Jose's pension plan is managed through the Federated Cities Retirement
System, and carries the same 960 hours limit. It is possible for a retiree from an agency
with one pension system to be rehired by an agency with a different pension plan
without a limit on hours. Atypical accounting calendar assumes 2080 working hours
per full -time employee. 960 hours is 46% of a full -time position, which is less than half-
time. Most agencies will not authorize a requisition to add a position or to fill a vacant
position unless workload demand is closer to 100% of a full -time person equivalent
(FTE). Some agencies prevent a person retiring on disability from being rehired, and
some agencies prohibit them from returning to the position they retired from on
disability.
Occasionally there is a circumstance where an RHP is hired to fill a position that has a
different retirement age. In this circumstance, CaiPERS requires a 60 — 90 day cooling-
off period before the RHP is permitted to end retirement, just to be sure that the RHP
truly wants to end this "time oft' benefit.
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Wait Period
When a skilled employee retires, departments naturally feel the loss of that skill.
Retraining or rehiring a new employee is time consuming. So it is understandable to
want to immediately rehire a retiree. The City of San Jose has a 30 -day waiting period
preventing retirees from being rehired. This period is designed to test a rehiring
department's dependency on a retiree by determining whether a department is actually
able to perform the retiree's tasks in their absence. While a wait period makes sense in
performing routine work, it does limit an agency from taking advantage of a highly
skilled retiree to perform a time - critical task during the first 30 days of their retirement.
For retirees seeking to return to work as independent contractors, there is a wait period
(typically two years) to ensure fair competition with other bidders. Typically, competitive
bids are required in most purchasing departments; however, sole source justification
situations can occur. In this case, buyers justify purchasing a resource without
competition because that resource has_a very unique skill not possessed by competitors
or when work to be done has an urgent deadline that going out for competition would
prohibit meeting.
Written Procedures
With the exception of San ,Jose, agencies interviewed do not have formal written
procedures covering rehiring of retirees; however, all have approval and periodic review
processes. In the approval process, HR and business manager approvals are required
if a manager requests to bring a retiree back on payroll. A key reason for this approval
is to determine whether a rehire is a retiree; if so, the 960 hours limit is put in place.
Most HR and business managers interviewed confirmed they also receive a regular
report detailing hours of RHPs, and closely monitor the use of RHPs to ensure the 960
hours limit is adhered to.
Some agencies have a pre - hiring step that first asks existing employees if they want the
overtime work assignment an RHP would be recalled to perform. If existing employees
turn down the assignment, managers are then free to rehire retirees for short- duration
projects.
Succession Planning
Because managers typically rehire pensioners to perform the same work they did before
retiring, the question of succession planning arose during Grand Jury interviews.
Succession planning is a process whereby departments plan for who will be promoted
into key positions in the event a person currently performing such critical work departs.
In most cases, interviewees reported succession planning is done ad hoc at best.
The reasons why formal succession planning does not happen were somewhat
consistent: in this economy, there is no need to succession plan because agencies are
looking for ways to eliminate the vacated position. Particularly in today's tough
economy, agencies reduce costs through attrition, redistributing work to remaining
employees. Short term, if there is a delay in redistributing tasks, a retiree may be
rehired to help bridge the transition.
Il
The Grand Jury applauds agencies for rethinking how work may be done and who best
to accomplish the tasks. As long as employees are not overly burdened with added
responsibilities such that their performance suffers, it can be a good business decision
to combine roles where it makes sense, e.g., San Jose's combining the directorship of
the Airport and Team San Jose. Driven by budget woes, such creative thinking can
create a healthier and higher performing work group.
To prepare workers for added responsibilities or to provide a broader view of the
agency's work, agencies offer general development programs such as formal and
informal mentoring and speed coaching for employees with interest. Some agencies
conduct leadership development for a selected group of high potential employees to
help transition them to higher -level responsibilites when those opportunities open up.
How Pay is Determined and What Benefits RHPs Receive
If brought back, an RHP's hourly wage is not to exceed their wage at retirement;
however, in all cases the pay rate is that of the job the RHP will fill. For example, if the
job the RHP is to perform is in a lower salary range than the one they retired at, the
rehired pensioner is paid in the lower salary range. RHPs do not receive fringe benefits.
Typical employer contributions for regular and RHPs are illustrated in Table 2. Hiring
departments do enjoy a cost savings in not having to pay fringe benefits to RHPs.
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Table 2: Employers enjoy cost savings when rehiring pensioners:
RHPs receive wages but no fringe benefits,
While there are good business reasons to rehire pensioners, some personnel concerns
are worth considering when rehiring a pensioner:
• Who is the boss? It can be challenging for the newly hired (replacement)
person to establish authority if a retiree is still in the work environment
• Will old ways impede new ideas? if an RHP is present while
reorganization is taking place, they may stand in the way of change
• Double - dipping ? - Perception of taking advantage of taxpayers twice —for
their pension and for their RHP wages —for personal advantage
• Back - scratching? Perception that the rehired retiree is not actually doing
anything, and the hiring manager is doing them a favor by supplementing
retirement pay with additional earnings.
Union Leadership Influence
Unions are reportedly not in favor of rehiring pensioners, largely because if a person
were hired to fill a full -time position, that individual would .be a contributing union -dues-
paying member. However, as noted above, most hiring managers hire retirees to fill a
short -term, urgent need, for which a full -time person would not otherwise be hired.
Comment on Recent Rehires in the News
The San Jose Mercury News recently reported' on double - dipping abuses, implying a
systemic use of a misguided hiring practice. The Grand Jury agrees with the article only
in the instance of the rehiring of the City of Santa Clara Fire Chief. In this case, the City
of Santa Clara rehired its retired fire chief more than six years ago. The initial reason
given for rehiring the chief.was because a search for his replacement was not fruitful. it
has now been more than six years since the chief returned as a part -time worker. While
the Grand Jury sees the business rationale of continuing this arrangement (the City of
Santa Clara reports to have saved the city over a million dollars in salary and benefits),
it is unclear how a fire chief can be considered a part -time job. If this is truly the case,
perhaps the city should consider department consolidation and save even more money.
Regarding the lack of qualified candidates, it should be noted that both San .lose and
Milpitas have successfully recruited and hired well- qualified fire chiefs within this six -
year period.
1 "Best Part of Retiring? The Pay Raise — `Double -D ipping' Workers Get Pension and Contract Work,"
Karen de Sa, San Jose Mercury News (CA), December 31, 2090.
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Outlook
Some HR managers indicated they expect'a potential increase in the practice of rehiring
retirees. As cities deal with the continuing wave of retiring baby boomers, combined
with the scarcity of funds to hire replacements, RHPs offer an effective interim solution.
Conclusions
Most cities in SCC and SCC itself rehire retirees. For the most part, rehiring of
pensioners is a good business decision, helping agencies to fulfill short -term or urgent
work assignments where specialized skills, typically amassed over the career of a
retiree, are needed. In some cases, retirees also have the capacity to work twice as
fast as a new hire, thus saving agencies time. Hiring RHPs saves agencies the cost of
fringe benefits that otherwise would be paid to a full -time replacement worker.
Some members of the SCC Board of Supervisors recently made public their opinions
that rehiring pensioners is bad policy. By contrast, it appears hiring managers are.
making generally good business decisions in rehiring pensioners.
An unintended consequence of a relatively early retirement age (55 years for public
sector employees versus a private industry average of 65) is that employees are
incentivized to leave the workforce earlier than they may be ready to stop working, For
instance, interviewees consistently stated that if they work past their retirement age,
they "lose" money, because they could receive the same pay in pension while not
working at all. This creates the well - publicized public sector pension liability that could
be avoided for ten years or more by raising the retirement age. The early retirement
age also creates a void agencies must fill and, because workers may wish to continue
working past age 50 or 55, creates the desire to return to work as a rehired pensioner.
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Findings and Recommendations
Finding 1
In spite of public opinion, there are situations that warrant rehiring pensioners and often
it makes good business sense to do so. All managers interviewed follow existing
procedures, which allow rehiring of pensioners.
Recommendation I
If the County or the City/Town of Campbell, Cupertino, Gilroy, Los Altos, Los Altos Hills,
Los Gatos, Monte Serena, Morgan Hill, Milpitas, Mountain View, Palo Alto, San Jose,
Santa Clara, Saratoga, Sunnyvale desire to end the practice of rehiring pensioners, they
should make that official by means of a policy decision.
Finding 2
For over six years, the City of Santa Clara has filled a previously 24/7 type of
management job with a part-time employee. Clearly, the job is not a temporary or
limited- time - urgent- needs position and six years is more than sufficient time to find a
replacement.
Recommendation 2
The City of Santa Clara should consider consolidating with another agency's fire
department for fire services and eliminate the part -time fire chief position or fill the
position with a permanent part -time employee.
Finding 3
The fifteen towns and cities — Campbell, Cupertino, Gilroy, Los Altos, Los Altos Hills,
Los Gatos, Monte Sereno, Morgan Hill, Milpitas, Mountain View, Palo Alto, San Jose,
Santa Clara, Saratoga, Sunnyvale —and the County may be inadvertently creating a
demand to rehire pensioners because the public sector retirement age is relatively
young at 50 (police and fire) or 55 (administrative positions).
Recommendation 3
The fifteen towns and cities — Campbell, Cupertino, Gilroy, Los Altos, Los Altos Hills,
Los Gatos, Monte Sereno, Morgan Hill, Milpitas, Mountain View, Palo Alto, San Jose,
Santa Clara, Saratoga, Sunnyvale —and the County should continue to pursue a higher
retirement age with its public sector unions and associations.
This report was PASSED and ADOPTED with a concurrence of at least 12 grand jurors
on this 19 day of May, 2011.
Helene I. Popenhager
Foreperson
Gerard Rohe
Fore orro tern
Kathryn Janoff
Secretary
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