Argument in Support of Disparate Impact Claim This claim is

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					                          Argument in Support of Disparate Impact Claim

This claim is based on the disparate impact that the San Jose Police and Fire Retirement Plan has
on age protected class members, as a result of the retirement formula that went into effect on July
1, 2006.


The City of San Jose Police and Fire Retirement Plan is a defined benefit plan. The California
Public Employee Retirement System (PERS) uses a formula where years of service are multiplied
by 3% (years of service x 3%). If you worked for 20 years, the number would be 60%; 30 years
equals 90%. Multiply the total average amount you were paid during your last year of
employment by this figure, and the result is your pension.

San Jose had a similar system prior to 1994, except that the formula used 2.5% instead of 3%,
creating a 75% maximum pension system. After February 4, 1994, the formula became an 80%

        Years 1 to 20 = 2.5%
        Years 21 to 30 = 3%

On February 4, 2000 the formula became an 85% system:

        Years 1 to 20 = 2.5%
        Years 21 to 25 = 3%
        Years 26 to 30 = 4%

In December 2005 the POA and the City agreed to a new retirement contract formula, creating
the opportunity for long-term members to enjoy a 90% system:

        Years 1 to 20 = 2.5%
        Years 21 to 30 = 4%

From the Memorandum of Agreement:

        The current formula for calculating retirement benefits is 2 1/2% of final compensation
        for each year of service with the City up to 20 years, plus 3% of final compensation for
        each year of service with the City between 21-25 years, and 4% from 26-30 years subject
        to a maximum of 85%.

        The enhanced benefit formula will be changed to 2 1/2% of final compensation for each
        year of service with the City up to 20 years, plus 4% of final compensation for each year
        of service with the City between 21-30 years subject to a maximum of 90%.

        The enhanced benefit formula will be effective for all employees covered by the MOA
        who are members of the Police & Fire Retirement Plan and who retire on or after July 1,
Under this plan, 30 years of service gives long-term members the equivalent of belonging to a
PERS-like 3% multiplier plan.

The plan has a 90% cap, which means that you can maximize your benefit if you work for 30
years, however working any more than that will have no effect on your pension.

The product of factoring the 2.5% and 4% multipliers together is the "effective multiplier." The
following chart shows the effective multiplier produced by the formula.

                                             Pension as a %
                Years of                                          Effective Multiplier
                              Multiplier     of Last Year's
                Service                                           for Years of Service
                   1             2.5               2.5                   2.50
                   2             2.5               5.0                   2.50
                   3             2.5               7.5                   2.50
                   4             2.5               10.0                  2.50
                   5             2.5               12.5                  2.50
                   6             2.5               15.0                  2.50
                   7             2.5               17.5                  2.50
                   8             2.5               20.0                  2.50
                   9             2.5               22.5                  2.50
                   10            2.5               25.0                  2.50
                   11            2.5               27.5                  2.50
                   12            2.5               30.0                  2.50
                   13            2.5               32.5                  2.50
                   14            2.5               35.0                  2.50
                   15            2.5               37.5                  2.50
                   16            2.5               40.0                  2.50
                   17            2.5               42.5                  2.50
                   18            2.5               45.0                  2.50
                   19            2.5               47.5                  2.50
                   20            2.5               50.0                  2.50
                   21            4.0               54.0                  2.57
                   22            4.0               58.0                  2.64
                   23            4.0               62.0                  2.70
                   24            4.0               66.0                  2.75
                   25            4.0               70.0                  2.80
                   26            4.0               74.0                  2.85
                   27            4.0               78.0                  2.89
                   28            4.0               82.0                  2.93
                   29            4.0               86.0                  2.97
                   30            4.0               90.0                  3.00

The normal retirement age for the SJ retirement system is 55. (The plan allows members with 25
years of service to retire at age 50.) Under the new contract, a person hired at age 25 or younger
has the potential to work for 30 years and receive a 90% pension. A person hired at age 40 has
the potential to work for 15 years and receive a 37.5% pension. Under an age-neutral formula at
age 55, the age 40 hire should instead receive half of what the age 25 hire receives, which is 45%.

I refer to the 2.5% multiplier as "tier-1," and the 4% multiplier as "tier-2." The POA does not use
the term "tier" to distinguish the different multipliers, nor does it concede that we have a multi-
tiered plan. (A labor contract that imposes a tiered retirement plan is viewed as a "loss" for a POA
negotiating team, because it means that benefits for some employees will be less than other's. I
say, "If it walks like a duck...")

Normally, a multi-tiered retirement system uses a single multiplier, and a different contribution
rate, for each tier. Date of hire determines the tier (or fund) that an employee is placed in. In the
San Jose plan, all employees pay the same contribution rate into a single fund, but pensions are
calculated using different multipliers, depending on the number of YOS that have been accrued.
The retirement formula produces literally thousands of effective multipliers that fall between
2.5% and 3%. (I retired using an effective multiplier of .52231%.) Each one would be the
equivalent of a distinct tier in any other multi-tiered system, except that SJ employees are placed
into one of these tiers on the basis of YOS, instead of date of hire.

An actuarial study to determine the contribution rate is done every few years. The City Charter
requires that 3/11ths of the cost of unfunded liability be paid by the employee and the rest by the

As a result of the new contract, an additional increase of .67% has been added to the contribution
rate. The City pays an additional .57%; employees pay an additional .1%, or about $95 a year.
This is on top of the extra cost already being contributed to fund the enhancements from the prior
contracts, which also used rear-loaded formulas. The true cost of the rear-loaded formulas is
likely to add an additional $1000 a year to the contributions paid by officers accruing only a 2.5%

Every employee must contribute the same rate. The extra cost is a fair investment for younger
hires. Older hires, however, are over-funding their projected liability. This is an actuarial
certainty. The over-funding helps pay for the cost of the progressive multiplier that is enjoyed by
younger hires.

From the Code of Federal Regulations:

        (4) Employee contributions in support of employee benefit plans--

        (i) As a condition of employment. An older employee within the protected age group may
        not be required as a condition of employment to make greater contributions than a
        younger employee in support of an employee benefit plan. Such a requirement would be
        in effect a mandatory reduction in take-home pay, which is never authorized by section
        4(f)(2), and would impose an impediment to employment in violation of the specific
        restrictions in section 4(f)(2).

The above section supports the argument that requiring older hires to contribute more than
younger hires for the same benefit represents an unjustified reduction in take-home pay. As a
parallel argument, requiring older hires to contribute the same as younger hires to fund an
effective multiplier that only younger hires will receive also represents an unjustified reduction in
take-home pay.

Compared to a 21-year-old hire, the progressive aspect of the formula begins to diminish the
enhancement for a person hired at age 26, and completely eliminates it for a person hired at age
35 or later.

Contributions are deducted from every paycheck, so an adverse impact occurs with every
paycheck issued to an after-age-25 hire, as he or she transitions into the protected class at age 40.

One way to quantify the effect of rear-loading is to project the number of years that an employee
will spend in the 4% tier during his or her career, at any given hiring age. By dividing that into
the total number of years employed to age 55, you obtain a percentage of years that an employee
is projected to accrue YOS in the 4% tier.

                         Number of years in 4% tier
                         -------------------------------- = % of career in 4% tier
                         Number of years in career

    •   Persons hired between ages 21 to 25 are projected to accrue 33% of their career in the 4%
    •   Persons hired between ages 26 to 34 are projected to accrue 32% to 1% of their career in
        the 4% tier.
    •   Persons hired at age 35 or later are projected to accrue 0% of their career in the 4% tier.

Exhibit A demonstrates how the formula has a disparate impact on those persons that are older on
the date they are hired. (In fact, I believe the table supports the presumption of an adverse
treatment claim.)

It is a mathematical impossibility for a person hired at age 26 or older to receive the full benefit
of the 4% multiplier by the time he or she reaches normal retirement age. The intentional
reduction or exclusion of older hires from the benefit of the 4% multiplier is the basis for the
disparate benefit levels, and this complaint.

Disparate Impact

In Smith v. City of Jackson Mississippi, 125 S.Ct. 1536 (2005) the Supreme Court ruled that an
employer may be held liable for age discrimination based on a facially neutral employment policy
that has a disproportionate effect, or “disparate impact” on older workers. Thus, an employer may
be liable for unintentional age discrimination.

The defense against such a claim is that the requirement or practice was based on a “reasonable
factor other than age.”

The City of Jackson sought to raise the salaries of officers under a plan that resulted in older
officers, taken as a group, receiving a lesser amount. The Court gave the following explanation
for why it did not rule in the plaintiff’s (older officer’s) favor:

        Turning to the case before us, we initially note that petitioners have done little more than
        point out that the pay plan at issue is relatively less generous to older workers than to
        younger workers. They have not identified any specific test, requirement, or practice
        within the pay plan that has an adverse impact on older workers. As we held in Wards
        Cove, it is not enough to simply allege that there is a disparate impact on workers, or
        point to a generalized policy that leads to such an impact. Rather, the employee is
        irresponsible for isolating and identifying the specific employment practices that are
        allegedly responsible for any observed statistical disparities. íî 490 U. S., at 656†
        (quoting Watson, 487 U. S., at 994).

To be successful, a plaintiff must first show a specific test, requirement, or practice that produces
a disparate impact on older workers. In this case, the disparate impact is the result of:

        •    The practice, since at least 1994, of including a 20-YOS test in the retirement
             formula in order to frustrate the ability of persons hired at an older age from retiring
             under the same effective multiplier that is funded for persons hired under age 25.

Reasonable Factor Other than Age

A successful plaintiff must clear a second hurdle by being able to refute the defense’s claim that
the disparate impact was the result of a reasonable factor other than age.

        Reliance on seniority and rank is unquestionably reasonable given the City’s goal of
        raising employee’s salaries to match those in surrounding communities. In sum, we hold
        that the City’s decision to grant a larger raise to lower echelon employees for the
        purpose of bringing salaries in line with that of surrounding police forces was a decision
        based on a “reasonable factor other than age” that responded to the City’s legitimate
        goal of retaining police officers. (Smith v. City of Jackson)
The rear-loaded formula was designed to mitigate costs. The City of San Jose offered no
argument during the contract negotiations that a rear-loaded formula was needed to satisfy a
staffing issue, a career development goal, an increase in the level of service, or any other policy
issue. The City did not come to the bargaining table with the position that if the POA demanded a
retirement formula that was less than what was eventually agreed to, it would thwart some
management plan and be therefore unacceptable.

What was told to the membership was that the City claimed it could not afford to give all
members the 3% multiplier and that the rear-loaded formula was the best it would offer.

Cost/Savings and Hiring Age

The “reasonable factor” that guided the City was containing cost. In order to understand the cost
implications of any proposed changes to the retirement formula, you must first review an
actuarial valuation of the plan.

From the Cal PERS web site glossary:

        Actuarial Valuation: To ensure that benefits provided are fully funded and to determine
        employer contribution rates, annual valuations are completed. Actuaries use each
        employer’s schedule of benefits, membership data, and a set of actuarial assumptions
        (i.e., life expectancy, inflation rates, etc.) to estimate the cost of benefits.

Actuarial assumptions look at membership data, which includes date of birth and date of hire, in
order to project the years of service that each member will likely work. Hiring age is a factor that
affects any valuation that the City relies on during negotiations.

This argument is illustrated by considering the City’s response to the following two situations:

    Situation 1: The cost associated with the present actuarial assumption.

    Situation 2: The cost associated with an actuarial assumption that consists
                 of only persons hired at age 21.

The City has already agreed to pay the cost related to Situation 1. Had Situation 2 been the true
state of affairs, the City presumably would have rejected the present formula. It would represent
the cost equivalent of a 3% multiplier for all members, which the City claims it cannot afford.
The only factor that is different between the two actuarial assumptions is hiring age.

Years of Service as a Proxy for Hiring Age

A member cannot calculate any YOS-based benefit using the tier-2 multiplier unless 20 YOS
have first accrued. The accrual of 20 YOS is therefore a test that must be met before any YOS are
calculated using the 4% multiplier. Both the test, and the specific value “20,” are at issue.

In Hazen Paper Co. v. Biggins, 507 U.S. 604 (1993), the Supreme Court held that when an
employer acts on the basis of years of service, a factor that is merely "empirically correlated"
with age, a disparate treatment claim will fail. It is important to note the context, however. Hazen
was refuting the plaintiff's argument that years of service were necessarily a proxy for age.
This does not mean that Hazen approves the situation here, where a specific number of years of
service (20) was inserted into the formula as a test, for the sole purpose of delineating against
specific employees, who were pre-identified by age-related factors. Hazen certainly did not go so
far as to say that considering years of service to intentionally target older hires was lawful. In
fact, Hazen said about firing employees who are near vesting:

        We do not preclude the possibility that an employer who targets employees with a
        particular pension status on the assumption that these employees are likely to be older
        thereby engages in age discrimination. Pension status may be a proxy for age, not in the
        sense that the ADEA makes the two factors equivalent, cf. Metz, 828 F. 2d, at 1208 (using
        "proxy" to mean statutory equivalence), but in the sense that the employer may suppose a
        correlation between the two factors and act accordingly

Using a facially age-neutral factor, such as YOS, to delineate against older hires could violate
ADEA if the employer believed that a correlation existed and relied on that belief. The issue
then, is:

        • Did the City believe that a correlation existed between hiring age and YOS?; and,

        • Did this belief influence the City’s position during negotiations over what effective
          multiplier that would be earned for YOS?

Since the middle 1980's the City has been pinched between a statewide LEO labor trend toward a
3% per YOS benefit, and the need to contain retirement costs. The solution was some form of a
multi-tiered YOS test. Cost projections showed the test would save money. Cost projections rely
on the fact that a strong correlation coefficient exists between hiring age, and YOS: the older the
hiring age, the lower the YOS that are actually accrued by members. The City believes that this
correlation exists and that it is predictive, as evidenced by the City's reliance on the cost
projections to set contribution rates.

Hazen said that "because age and years of service are analytically distinct, an employer can take
account of one while ignoring the other, and thus it is incorrect to say that a decision based on
years of service is necessarily 'age-based.'" A disparate treatment claim must prove the
"employee's protected trait actually played a role and had a determinative influence on the

On its face, the formula does not consider age in calculating the multiplier. However, wouldn’t a
formula, which is facially age neutral, become fatally flawed if the age of a claimant had a
determinative influence on setting its terms? Can the poisonous tree doctrine be applied to the
fruits of discriminatory intent?

Jackson said that a specific test, requirement or practice is required to show a disparate impact,
and also affirmed that the employee is "responsible for isolating and identifying the specific
employment practices that are allegedly responsible for any observed statistical disparities." The
Court wants proof of a direct cause and effect.

A Jackson test examines qualifying factors, such as years-of-service, to determine if a practice is
age-neutral. For the sake of argument, suppose that the City and POA said that the formula was
intentionally crafted to place the higher multipliers beyond the reach of older hires for the
purpose of mitigating costs. What language is missing from the current formula that shows this is
a preposterous claim?

If the current formula is fully formed to support this conjecture, and an independent argument
(explained below) shows that delineating on the basis of hiring age is the only way the formula
can mitigate costs, then the crucial language that satisfies Jackson must be part of the current
formula. But where, specifically, is it?

If a factor is facially age-neutral but its real intent is to delineate against workers based on hiring
age, such as using a test for balding or gray hair, then the factor is a proxy. You will find no
smoking gun by examining the language of a formula that uses a proxy, however, unless you first
entertain the possibility that the formula uses a proxy. That requires you to step back from the
formula and consider what is accomplished by any suspect language.

The Impact of “20”

How was 20 years of service chosen as the test threshold to the tier-2 multiplier? Why not 17 or
24 years? The initial suggestion in 1994 to use 20 YOS was probably arbitrary, considering that
another delineation was made at 25 YOS. One thing is sure: without knowing the hiring age for
each member in the assumption, and therefore their potential years of service to age 55, the effect
that this factor had on saving costs could not have been calculated.

The City had to consider age related factors within our assumption in order to calculate the effect
on saving costs. Hiring age and cost, if not already intrinsically linked, became logically linked
by this consideration. Considering age to project cost does not violate the ADEA. Acting on that
consideration could, if that act produces a disparity.

The oldest normal retirement age offered by the plan is 55. The 20-year offset therefore sets age
35 as the oldest hiring age at which YOS under the tier-2 multiplier will normally be accrued. The
offset is equivalent to declaring that the tier-2 multiplier was negotiated primarily for the benefit
of persons hired under age 35.

Assuming that employees will retire at the normal retirement age 55, reducing or eliminating
accrual time under tier-2 is the only effect that is achieved by the offset. Cost projections, and
common sense, show that hiring age and YOS are strongly correlated; the older the hiring age, the
lower the accrued YOS. The 20 YOS test is intended to save cost by betting on the strength of
this correlation. The test is a proxy, which the projections predict will successfully delineate
against a progressive hiring age.

Belief in the strength of the correlation is the reason that the test was accepted as a mechanism for
mitigation cost, a situation warned about in Hazen.

The formula has two parts, but the second half of the formula doesn't come into play unless a
member has accrued more than 20 YOS. The target of the proxy therefore changes, depending on

If a member has accrued 20 YOS or less, then only the first half of the formula is used and the
test becomes a proxy aimed specifically at "members who were hired at age 35 or older."
If a member has accrued more than 20 YOS, then the second half of the formula kicks in and the
results of the two halves are added together to create a progressive multiplier. In this situation, the
20 YOS test becomes a proxy to delineate against "members who were hired between age 26 and
34." (Persons hired between the ages 26 to 34 have a decreasing or increasing tier-2 accrual
period, depending on your point of view.)

It follows that any observed statistical correlation between an older hiring age and a lower
multiplier at age 55, is more than casual; it is the logical, intended consequence of implementing
a 20-year offset for the tier-2 multiplier.

The offset is the reason for the lower multipliers, and commensurate lower pensions, that the
formula produces for older hires. This is direct cause and effect.

But For

The Ninth Circuit uses a "but for" test in analyzing disparate impact claims under the ADEA. The
City's reason for using a progressive multiplier is to mitigate costs. It was not negotiated for, nor
was it intended to be, a reward for years of service. As applied to this case, but for the presence of
older-age-at-hire members within our assumption, a 20 YOS benefit test, in and of itself, does not
realize a savings in cost.

If no one hired at age 26 or older was in our assumption, then no savings would have been
realized and the 20 YOS test would have neither been part of the negotiations, nor the formula.
The City, however, knew that the membership contained a substantial number of older hires. The
City looked at projections that rely on the strong correlation that exists between actual YOS and
hiring age. These projections virtually guaranteed that these older hires would retire with less
than 30 years of service. The City thereby knew that a 20-year offset would reliably reduce the
effective multiplier earned by these older hires. In fact, it counted on it as the mechanism to
mitigate the costs that would otherwise come if all employees enjoyed 3% for each year of

If containing cost was the reason for creating a rear-loaded formula, then older hires within the
assumption was the factor that gave rear-loading consequence. The formula was crafted to
delineate against these older hires, who were actually identifiable to the City by name by simply
sorting the membership by hiring age.

Willful Intent

          We therefore reaffirm that the Thurston definition of "willful"--that the employer either
          knew or showed reckless disregard for the matter of whether its conduct was prohibited
          by the statute--applies to all disparate treatment cases under the ADEA. Once a "willful"
          violation has been shown, the employee need not additionally demonstrate that the
          employer's conduct was outrageous, or provide direct evidence of the employer's
          motivation, or prove that age was the predominant rather than a determinative factor in
          the employment decision. (Hazen)

An employer can be found liable for an age disparity impact claim even though there was no
intent to do so. That is not the case here. If the City's goal was to mitigate costs, then pursuing a
lesser single multiplier could have achieved that goal without using a 20 YOS test. If the City's
goal was to provide a 90% retirement benefit based on YOS, then pursuing a single 3% multiplier
would have achieved that goal without using a 20 YOS test.

The City's willful intent was to ensure that specific hires, identified by age related factors, would
receive less than an effective 3% multiplier. This was achieved by offsetting the 4% tier by a
specific span of time (20 years), in a formula that provides a benefit at a specific age (55).

Negotiation Strategy and Illegal Conduct

The goal of obtaining a 3% multiplier for all members has been a contentious issue in labor
negotiations with the City and POA for over 20 years. It is an emotional issue that threatens to
send the parties to arbitration during every bargaining session.

Successful negotiations need only satisfy a majority of members. By cutting late-hires out of the
tier-2 enhancement, the City and POA were able to offer a less expensive quasi 3% system to
young-hires, thus ensuring that they would ratify the contract.

Those hired between age 26 and 34 also saw some improvement. The negotiations team stated
that they believed that the formula was the best the City would offer. Faced with a "something is
better than nothing" situation, the age 26 to 34 group joined with the young-hires to create the
majority needed to ratify the contract.

The City and POA, however, have the burden to comply with the provisions of ADEA in all their
endeavors, including labor negotiations.

ADEA SEC. 623 [Section 4]:

        (a) It shall be unlawful for an employer-

                 (1) to fail or refuse to hire or to discharge any individual or otherwise
                 discriminate against any individual with respect to his compensation, terms,
                 conditions, or privileges of employment, because of such individual's age;

Section 623 also prohibits the POA from placing on the negotiations table, or agreeing in any
contract, language that discriminates against a member on the basis of age:

        (c) It shall be unlawful for a labor organization-

                 (1) to exclude or to expel from its membership, or otherwise to discriminate
                 against, any individual because of his age;


                 (3) to cause or attempt to cause an employer to discriminate against an
                 individual in violation of this section.

Section 4(f)(2) provides several exemptions to Section 623 to employers for: (paraphrased)

        •    (A) bona fide seniority system that does not discriminate by age; or,
        •   (B) to observe the terms of a bona fide employee benefit plan-

            (i) where, for each benefit or benefit package, the actual amount of payment made or
            cost incurred on behalf of an older worker is no less than that made or incurred on
            behalf of a younger worker, as permissible under section 1625.10, title 29, Code of
            Federal Regulations (as in effect on June 22, 1989); or

The disparity in benefits is not the result of a seniority system because benefits are based on years
of service and not by longevity ranking among other members. The first exemption does not

The second exemption is known as the "equal cost defense." This exemption was intended to
ensure that employing older workers would not result in a financial burden under the ADEA. The
exemption allows an employer to provide a lesser benefit to older employees, provided the reason
is due to costs that are the result of physical aging.

From the EEOC Compliance Manual:

        The equal cost defense is not available for all benefits. Employers may use the defense
        only for benefits that become more costly to provide because of advancing age. The types
        of benefits that may meet this test are:

                 Life insurance benefits;

                 Health insurance benefits; and

                 Disability benefits.(13)

        Many benefits do not become more expensive to provide as people get older. For
        example, paid vacations and sick leave are not subject to the equal cost defense. The
        equal cost defense also does not apply to service retirement or severance benefits.

Older hires present no additional costs to the retirement system. The second exemption in 4(f)(2)
is not an available defense.


Every newly negotiated contract offers the possibility that the formula will become age-neutral.
Therefore, any member that can show a disparity caused by the 20 YOS test, and who retires
under the terms of the new contract, has standing.

A conceivable defense is that the Act does not protect employees who are age 21 to 39, therefore
any disparity that results from the consideration of a hiring age that falls within that range does
not violate ADEA. This is misleading to the issue of standing here because standing is not based
on a consideration of an employee's hiring age made 15 or 20 years ago, but rather it is based on
an employee's age at the time that his or her date of birth and date of hire were factored into
decisions concerning items placed on the table during contemporary negotiations.
Distinct data labeled "hiring age" does not actually exist as an original value in the actuarial
assumption, but instead is derived from a calculation in which a member's date of birth is
subtracted from their date of hire. This calculation provides an accuracy that is in days, not years.

The phrase "hiring age," as used throughout this argument, is more than just a reference to the age
of an employee on the date that he or she is hired; It is a metaphor for the liability that the
employee represents to the plan at any given time or consideration, based on calculations
involving his or her date of birth, date of hire, projected retirement date, and projected life span,
among other factors.

In this sense, the proxy is really intended to target certain pension liabilities, identified by factors
related to hiring age. However, using hiring-age-related factors to target liabilities would, not
surprisingly, result in a disparate impact that correlates exactly with those same age factors.

The disparate impact here is due to contemporary decisions that considered factors that are related
to hiring age. My standing, specifically, is based on the fact that:

         •   My date of birth and date of hire were factored into an actuarial valuation; and,
         •   The valuation was used to project costs during negotiations; and,
         •   The terms of the retirement formula were decided, based on those projections; and,
         •   The formula was included in the MOA that was signed by the POA and the City; and,
         •   My pension was calculated using the formula, and was subsequently awarded; and,
         •   The formula had a disparate impact on me due to age related factors; and,
         •   All of the above actions occurred while I was over age 40.


Several arguments for remedy can be made based on the multiplier. Generally, employees who
are discriminated against are entitled to damages that will restore them to the economic positions
they would have occupied but for the unlawful conduct of their employer. Under this equity
argument, all employees would be entitled to the same effective 3% multiplier that is enjoyed by
young hires.

Another remedy might be to create a single multiplier based on what our current contribution
level would provide. This multiplier would undoubtedly be less than 3% and would result in
young hires loosing a benefit level that was already agreed to during good faith bargaining.

The issue is not the multiplier, however; it is the 20 YOS test. A remedy that removes the
offending 20 YOS test from the formula, yet leaves all other terms of the formula intact, is
conservative and reasonable, but the resulting formula should preserve the City's commitment to
certain employees to provide a 90% retirement for 30 years of service.

Traditionally, pension plans treat YOS as a value that represents the total span of time that a
person is employed: from the day of hire to the day of separation. Our formula defines two
specific spans of time, delineated at the 21st year, and gives YOS accrued in each span a different
potential to affect the pension benefit. In other words, a year of service that is accrued beginning
at the fifth year of employment does not have the same value as a year of service that is accrued
beginning at the twenty-fifth year of employment.
The remedy is to consider YOS as a single span of time, and the tier values "20" and "10" as
ratios of 30 years of service. Using ratios keeps the relative values specified by each multiplier,
but creates a single span of time so that all years hold the same accrual value. The contract
wording would be:

        The enhanced benefit formula will be changed to 2 1/2% of final compensation for 2/3rds
        of all years of service with the City, plus 4% of final compensation for 1/3rd of all years of
        service with the City, subject to a maximum of 90% of final compensation.

The above language does not change the multipliers that were agreed to through collective
bargaining. It simply removes the 20 YOS test. Equity arguments to determine a single
replacement multiplier are not needed.

The resulting effect, of course, is that all employees will receive an effective multiplier of 3%.
This ensures that the already agreed to 90% retirement for 30 years of service for certain
employees is unchanged.

Jon Muller

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