By Theresa Harrington

WALNUT CREEK, Apr. 8, 2008 (McClatchy-Tribune Regional News delivered by Newstex) --
This month, about 175 part-time and temporary Walnut Creek employees must decide whether to continue contributing to Social Security or take an alternative retirement program.

All new part-time and temporary employees who work less than 1,000 hours a year will have no choice: They will be enrolled in a deferred compensation plan that takes effect May 30.

"I would describe it as a win-win situation," said Councilman Gary Skrel. "It lowers the city's cost and in turn provides the employees with what appears to be a better retirement-type benefit. They're immediately vested and it's transferable. It's better because it provides a lot more flexibility for the employee."

The Accumulation Program for Part-time and Limited-service Employees, or APPLE plan, will give employees slightly larger paychecks and save the city about $59,000 a year in benefits costs. This is because less money is invested in the plan than in Social Security.

Under Social Security, the city and employee each contribute 6.2 percent of gross income for a total of 12.4 percent. In the new program, workers contribute 5 percent and the city contributes 2.5 percent for a total of 7.5 percent.

"Many other cities and government agencies have gone this route," said Fred Marsh, Walnut Creek's finance manager. "Employees basically get a deferred compensation plan they wouldn't get under Social Security."

Not everyone shares the view that this a better deal for employees.

Social Security guarantees a set amount of money for the rest of a person's life after he or she retires, said Gary Craft of the Craft Consulting Group. The new plan guarantees a 3 percent minimum interest rate on money the employees invest in group annuity products sold by the American United Life Insurance Co.

"Three percent barely keeps up with inflation," Craft said. "The Republicans and the Bush administration have pushed moving toward getting away from Social Security to these alternative systems and it all sounds nice until you start looking at the details."

The Walnut Creek council unanimously agreed to contract with Keenan and MidAmerica, firms based in Southern California and Florida. Keenan receives commissions from American United Life and MidAmerica receives undisclosed fees from the insurance company, but there is no cost to Walnut Creek.

The executive of a firm considered for the city contract sees a downside to this arrangement.

"We think we have a superior product with fees that are completely disclosed," said Kevin Murphy, executive vice president of Public Agency Retirement Services. "The agencies have complete flexibility on the investment of the plan assets, whereas in this particular case, they're locked into using this group annuity product and no one really knows what the fees are. The fees are coming from the group annuity contract."

This means Keenan could keep higher earnings as long as it pays out the minimum it guarantees, Murphy said.

"It will have the effect of reducing the investment return," Murphy said. "Let's say they're getting 6 percent. They could pocket the other 3."

One city employee said the new program might make sense for a younger person, but she's sticking with Social Security.

"If I were in my 20s and I had 40 years to plan for my future, I probably would have looked at it more closely," said clerk Bonnie Alcatraz, 62. "It's not like there's a whole lot of hours and whole lot of pay." She is close to retiring and also contributes to Social Security through her full-time day job.

Marsh said the new plan is attractive for young employees in part because they may later get full-time work where they will receive Social Security or other pension plans. Mayor Gwen Regalia said the plan is less complicated than Social Security.

"We keep hearing about the problems with Social Security and whether there will be benefits, whether they're going to raise the age and how much will actually be available when it's your turn," Regalia said.

"This seems a way to go that is a benefit to both our employees and our city."


ONLINE: Details about the APPLE Contract can be found at 925-943-5820 or http://www.walnut-creek.org. Click on "public meetings" and item 2c on April 1 council agenda.



Newstex ID: KRTB-0036-24345282