COVID-19 Pandemic May Force Some Cities to Reset Employee Benefits

by | May 11, 2020 | 401(a), 457(b) Plans, Retiree Health

By Jeff Chang

As the harsh realities of the coronavirus pandemic, along with its widespread impact on all aspects of daily life, continue to shock and numb us all, many cities have already been identified as “high risk” from a financial stability perspective by the California State Auditor. These employers, along with the hundreds of other public agencies facing severe downturns in revenue — while also facing unprecedented and unusual demands for public services — will be forced to examine all options for decreasing expenses and limiting liabilities.

We are not advocating any particular benefits changes, but summarizing a number of public agency employee benefits that may be subject to change or renegotiation in an effort to save money and jobs.

  • Suspension or reduction of employer contributions (including employer matches) to defined contribution plans, such as 457(b), 401(a) and 403(b).
  • Tighten or reduce eligibility for certain employer-paid benefit plans.
  • Subject existing employer-paid plans to vesting schedules, or longer vesting schedules.
  • Lowering of employer-paid health insurance premiums.
  • Reduction of employer’s obligations to provide OPEB.
  • Negotiation of higher employee cost-sharing of employer’s CalPERS contributions.
  • Reduction and/or elimination of employer-paid group insurance benefits, such as group-term life, long-term disability or long-term care.
  • Shifting of employer-paid cost for retirement plan recordkeeping and administration to plan participants.
  • Reduction in vacation and leave accruals and cash-outs.

These types of changes likely will be subject to objections and challenges based on plan terms, collective-bargaining rules, vested rights issues and individual employment rights. However, if cities and public agencies are truly on the ropes financially, then everything has to be put on the table. Public agencies’ staffs must familiarize themselves with the terms of these benefits and be in a position to discuss, and perhaps recommend, some of these changes.

Jeff Chang is a partner at Best Best & Krieger LLP. He has four decades of experience skillfully evaluating benefit and retirement plan compliance to achieve maximum outcomes for public agency clients throughout California. He can be reached at or (916) 329-3685.

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