With many Monterey County cities still feeling the economic slump, city officials are looking at lessening the looming tab of public safety employee pensions. In closed session on Jan. 19, Monterey City Manager Fred Meurer recommended the City Council pursue a two-tier retirement system: Perks for existing employees would remain, but new police and fire hires would get less-generous benefits.

City managers across the Central Coast have been discussing reining in California Public Employee Retirement System costs. CalPERS investment losses have left cash-strapped cities with higher retirement bills. “We all agree that the retirement system… is not economically or financially sustainable,” Meurer says. “So you better go to a new system.”

Meurer wouldn’t discuss specifics, and says any benefits changes would have to be negotiated with city employee groups, which are also being asked to take pay cuts to help close a $3.6 million budget gap next fiscal year. The city’s police and fire employees can currently retire at 50 and receive 3 percent of their average salaries – up to 90 percent – for every year worked.

“We understand the city and state need to save money, but this causes such tension when you have two different groups,” says Jim Courtney, president of International Association of Firefighters Local 3707, which represents Monterey firefighters. Courtney says reducing retirement benefits for new hires could also negatively affect recruitment, although the state could mandate a second tier anyway.

Gov. Arnold Schwarzenegger has been calling for a two-tier retirement system for state employees, and California Foundation for Fiscal Responsibility is proposing a November 2010 ballot initiative that would raise the full retirement age for peace officers and firefighters to 58 and reduce the ceiling for pensions to 75 percent of average base salary.

Salinas Mayor Dennis Donohue likes the idea of saving the gang-plagued city money by reforming CalPERS – the city is looking to cut 69 positions to offset a $9 million budget shortfall next fiscal year – but doesn’t want to lose any police officers. “I think we need to be very, very competitive given the nature of the police business in our city,” Donohue says, adding that although he plans to touch on pensions in his State of the Budget address on Monday, Jan. 25, switching to a two-tier system isn’t an immediate financial fix.