REPORT TO COUNCIL
SUBJECT
Title
Adopt Resolutions (1) Paying and Reporting the Value of CalPERS Employer Paid Member Contribution (EPMC); and (2) Amending the Salary Resolution to Remove EPMC and Revise the Schedule of Pay to Increase Salary Ranges for Pay Plan Category F (Unclassified Department Directors)
Report
BACKGROUND
Unclassified department directors (Pay Plan Category F) are at-will employees, appointed by the City Manager. Category F employees are not organized and do not negotiate for any changes to their wages, hours, and/or other terms and conditions of employment.
This report recommends eliminating the CalPERS Employer Paid Member Contribution (EPMC) for Category F positions. Prior to the Public Employees’ Pension Reform Act (PEPRA), EPMC was used as a recruitment and retention tool in the public sector. It allowed employers to pay all or a portion of the employee share of the required CalPERS retirement contribution, typically 7% or 8% of salary for Miscellaneous members and 9% for Safety members, on behalf of the employee. The City has contributed 4% EPMC on behalf of Classic Miscellaneous members and 6% for Classic Safety members since 2016.
EPMC made compensation packages more attractive for Classic CalPERS members, especially for hard-to-fill positions, without increasing base salaries. EPMC was seen as a cost-effective way to enhance take-home pay while deferring some of the long-term fiscal impact of higher base salaries for employers.
CalPERS retirement reform under the Public Employees’ Pension Reform Act (PEPRA) changed pension benefits for new employees hired into the CalPERS system after January 1, 2013, including higher retirement ages to receive the maximum benefit, caps on pensionable compensation, and a requirement to contribute at least 50% of the normal cost of their pension benefit.
Over time, concerns about pension transparency, equitable compensation for PEPRA and Classic employees, and rising retirement costs led many agencies to phase out employer-paid member contributions. Due to the evolving demographics of the workforce, the City of Sunnyvale is proposing to eliminate EPMC for unrepresented department directors. This recommendation addresses the significant compensation differential between Classic and PEPRA employees.
EXISTING POLICY
Council Policy 7.3.1 Legislative Management - Goals and Policies, Goal 7.3D: Maintain a quality workforce, consistent with state and federal laws, City Charter, and adopted policies in order to assure that City services are provided in an effective, efficient, and high-quality manner.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” with the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines section 15378(b)(5) in that it is a governmental, organizational or administrative activity that will not result in direct or indirect changes in the environment.
DISCUSSION
Under current policy, the City pays a portion of the CalPERS member contribution as an EPMC: 4% for Classic Miscellaneous CalPERS Tier 1 and Tier 2 employees, and 6% for Classic Safety employees. The Classic Miscellaneous member pays the remaining 3% or 4%, and the Classic Safety member pays the remaining 3%. The City of Sunnyvale also reports the value of the EPMC paid to CalPERS as additional compensation, which increases the base upon which retirement benefits are calculated. However, with the most recent Public Safety Officers Association (PSOA) contract, the EPMC benefit was eliminated for PSOA Classic Safety members.
PEPRA members, including anyone hired in 2013 or later and anyone with a gap in CalPERS agency service of more than six months since 2013, are ineligible for EPMC. In addition, PEPRA members must pay at least 50% of the actuarially determined normal pension cost, which is reviewed annually and increases as employer costs rise. Miscellaneous PEPRA members currently pay 7.5% of their salary to CalPERS up to salary limits, and public safety PEPRA members pay 12.75%. These required payments create a sizable current compensation differential between Classic and PEPRA Miscellaneous employees, in addition to significantly different retirement benefits. EPMC amplifies this differential compensation.
Labor Groups Request Removal of EPMC
Due to the differences in retirement benefits and the additional cost of providing EPMC, most agencies statewide have phased out EPMC in favor of employees paying their full member contributions. Aligning with statewide trends, the PSOA negotiated to eliminate EPMC for its members, effective July 6, 2025. The City is in active negotiations and discussions with the Public Safety Managers’ Association and the Communication Officers’ Association about alternatives to EPMC. The full removal of EPMC in Sunnyvale will be a multi-year project, as the Sunnyvale Employees Association/IFPTE Local 21 has a side letter agreement from 2017 that provides for EPMC contributions of 4% for Tier 1 and Tier 2 members through June 30, 2027.
This shift away from EPMC is responsive to the changing composition of the City’s workforce, which is now 61% PEPRA and rising.
Removal of EPMC for Directors
In response to these issues and to work toward a consistent approach to EPMC citywide, the City is proposing to eliminate EPMC for classifications in Category F (Unrepresented Department Directors, Assistant and Deputy City Manager), effective December 21, 2025. The same change will also apply to the City Manager, as the City Manager’s employment agreement follows the Category F for benefits, including CalPERS contributions, as outlined in the employment agreement.
Classic Category F employees will begin paying their full CalPERS member contribution (e.g., 8% or 7% for Miscellaneous, and 9% for Safety) through payroll deduction. As with PSOA and potential other labor group changes, the elimination of EPMC for Category F employees will be implemented in compliance with CalPERS regulations (Gov. Code 20691) and documented through the resolution in Attachment 1, which will be reported to CalPERS. (Reference: Circular Letter #200-052-22 Resolution for Employer Paid Member Contributions <https://www.calpers.ca.gov/documents/200-052-22/download>). Since Category F employees are not represented, there are no meet-and-confer obligations. However, the City Manager has provided notice to the impacted employees and understands the change will also apply to his employment agreement.
Recommended Schedule of Pay Adjustments
The Resolution in Attachment 2 includes changes to the Salary Resolution that reflect the EMPC adjustments for Category F positions, as well as certain salary changes to align with the pay philosophy outlined in RTC #17-0872, which was intended to maintain internal equity and prevent compaction between executive leadership and management classifications that reported to it, as identified below.
• The minimum of the salary range of the Director of Public Safety shall be 12% above the maximum of the salary range of the Deputy Chief of Public Safety with education premium. The maximum shall be 20% above the minimum.
• The minimum of the salary range of the Assistant City Manager shall be 3% above the minimum of the salary range of the Director of Public Safety. The maximum shall be 20% above the minimum.
• The Chief Information Officer and the Directors of Public Works, Environmental Services, Community Development, Finance, Human Resources, and Library and Recreation Services shall be consolidated to a single salary range. The minimum of the salary range shall be 3% above the maximum of the salary range of the Deputy Chief with education premium. The maximum shall be 20% above the minimum.
• The Director of NOVA Workforce Services shall continue to have a separate salary range due to the salary cap of the Workforce Investment Act guidelines. The salary range shall remain at the current rate of $205,182 - $270,840.
• On September 24, 2019 (RTC No. 19-0940), the City Council approved the minimum of the salary range the Deputy City Manager should be 10% below the minimum of the salary range of directors. The maximum shall be 20% above the minimum.
This year, the PSOA annual compensation survey returned a result to increase their salary by 6.75%. The corresponding July 2025 increase for the Public Safety Managers’ Association (PSMA) was 11.02% based on its Memorandum of Understanding. The difference in percentage increases between PSOA and PSMA is due to the PSMA MOU that addresses salary compaction between Lieutenants and Captains, as well as the elimination of EPMC for PSOA. This resulted in a higher adjustment for PSMA compared to PSOA’s survey results.
Traditionally, the City Manager would recommend an increase to the Schedule of Pay for Category F employees commensurate with the PSMA change (11.02%). However, given the high amount this year, staff proposes a 6.75% salary range increase for Category F positions, commensurate with the PSOA salary survey results. This could lead to some compaction between PSMA and Category F employees due to the 11.02% increase for PSMA. Staff will monitor this for any potential changes in future years.
The increase in the salary range does not imply that each employee will receive a 6.75% raise. The City Manager recommends individual pay increases for Category F employees within the approved pay schedule, while the City Council determines increases for the City Manager. The proposed 6.75% salary range increase for Category F positions will enable the City Manager to adjust individual salaries sufficiently to offset the elimination of the EPMC and preserve overall compensation levels, rather than directly apply the original pay philosophy.
FISCAL IMPACT
The FY 2025/26 Budget includes assumptions in total compensation, which include salaries, benefits, and retirement. Eliminating EPMC will generate annual salary savings by reducing the employer’s pensionable compensation exposure. EPMC amounts are considered pensionable under Classic CalPERS rules. EPMC removal will reduce future pension liabilities. This change will align Category F employee contributions with those of other groups (i.e., PSOA) who already pay the full employee CalPERS share. However, the adjustments in salary will also increase salary-related benefits, including retirement benefits, so the overall net fiscal impact of these changes is expected to be neutral.
PUBLIC CONTACT
Public contact was made by posting the Council meeting agenda on the City's official-notice bulletin board at City Hall, at the Sunnyvale Public Library and in the Department of Public Safety Lobby. In addition, the agenda and this report are available at the City Hall reception desk located on the first floor of City Hall at 456 W. Olive Avenue (during normal business hours), and on the City's website.
ALTERNATIVES
1. Adopt Resolutions (1) Paying and Reporting the Value of CalPERS Employer Paid Member Contribution (EPMC); and (2) Amending the Salary Resolution to Remove EPMC and Revise the Schedule of Pay to Increase Salary Ranges for Pay Plan Category F (Unclassified Department Directors).
2. Do Not Adopt Resolutions Paying and Reporting the Value of CalPERS Employer Paid Member Contribution (EPMC) or Amending the Salary Resolution to Remove EPMC and Revise the Schedule of Pay to Increase Salary Ranges for Pay Plan Category F (Unclassified Department Directors).
STAFF RECOMMENDATION
Recommendation
Alternative 1: Adopt Resolutions (1) Paying and Reporting the Value of CalPERS Employer Paid Member Contribution (EPMC); and (2) Amending the Salary Resolution to Remove EPMC and Revise the Schedule of Pay for Pay Plan Category F (Unclassified Department Directors).
Levine Act
LEVINE ACT
The Levine Act (Gov. Code Section 84308) prohibits city officials from participating in certain decisions regarding licenses, permits, and other entitlements for use if the official has received a campaign contribution of more than $500 from a party, participant, or agent of a party or participant in the previous 12 months. The Levine Act is intended to prevent financial influence on decisions that affect specific, identifiable persons or participants. For more information see the Fair Political Practices Commission website: www.fppc.ca.gov/learn/pay-to-play-limits-and-prohibitions.html
An “X” in the checklist below indicates that the action being considered falls under a Levine Act category or exemption:
SUBJECT TO THE LEVINE ACT
___ Land development entitlements
___ Other permit, license, or entitlement for use
___ Contract or franchise
EXEMPT FROM THE LEVINE ACT
___ Competitively bid contract*
___ Labor or personal employment contract
___ Contract under $50,000 or non-fiscal
___ Contract between public agencies
_X_ General policy and legislative actions
* "Competitively bid" means a contract that must be awarded to the lowest responsive and responsible bidder.
Staff
Prepared by: Tina Murphy, Director of Human Resources
Reviewed by: Matt Paulin, Director of Finance
Reviewed by: Sarah Johnson-Rios, Assistant City Manager
Approved by: Tim Kirby, City Manager
ATTACHMENTS
1. Resolution for Paying and Reporting the Value of Employer Paid Member Contributions (Pay Plan Category F)
2. Resolution Amending the City's Salary Resolution and Schedule of Pay to Increase the Salary Ranges for Unclassified Department Director Positions (Pay Plan Category F)
2. RTC No. 17-0872 (without attachments)
3. RTC No. 19-0940 (without attachments)