Laguna Beach’s firefighters will for the first time pay out of their own pocket for a portion of monthly pension contributions, but their share will be tax exempt.
Although not required by law, the City Council adopted a section of the Internal Revenue code Tuesday that allows a pre-tax deduction for firefighters now contributing to their pensions as a result of negotiations with their union, Orange County Firefighters Assn. Local 3631. The tax-exempt benefit will also be extended to all city staff once the council approves new contracts requiring other employees to also make personal pension contributions to the California Public Employees Retirement System, according to a city report.
Labor talks with the police union, whose contract expired in June, are still underway, and the city’s contract covering municipal workers expires in 2013.
Firefighters covered by the union contract are now required to pay 4.5 percent of their income towards their retirement and newly hired firefighters will pay the entire 9 percent contribution. The code allows the exemption only if the employer deducts the entire pension amount, the employee’s and the employer’s portions, from the employee’s paycheck. When the pension is distributed to the employee at retirement, taxes will apply.
The fire department, the city’s third most expensive after public works and police, with a $9.6 million budget, is the first to receive the exemption due to recently concluded contract talks. In a department of 41 firefighters, 35 earning more than $100,000 a year and 36 belonging to the firefighters’ union, the average salary is $145,896. According to Gavin Curran, the city’s financial director, the lowest paid full-time firefighter receives $68,505 before benefits with $3,083 now earmarked as his or her annual 4.5 percent pension contribution. The city’s highest-paid union firefighter receives $124,930 before benefits and will contribute $5,622 towards retirement. The average firefighters’ benefit package adds 41 percent to the employee’s overall compensation, excluding overtime.
With current employees, the city will pay the remaining 4.5 percent; new employees will contribute the entire 9 percent towards their retirement. Due to firefighters’ employee-pension participation, the city expects to save $148,000 the first year and $215,000 every following year.
Firefighters received an 11-percent cost of living pay raise in 2006 and a 5-percent increase each succeeding year up to 2010. In the firefighters’ previous five-year contract, pay included retirement contributions equal to 9 percent of salary.