CITY HALL — A coalition of Santa Monica employee unions agreed to alter their own health care payments and cut benefits to future employees in a nod to the growing burden of employee health and pension costs on public coffers.

Both deals cover employees in 13 different associations that cover all city employees except public safety personnel.

The new health care deal requires employees to pitch in 5 percent of the cost of their insurance premium beginning Jan. 1, an amount which cannot grow more than 15 percent in a single year.

At present, employees pay a fixed dollar amount, which is comparable to the 5 percent in the new agreement. However, the percentage model allows the cost the employee pays to grow as health care costs increase, said Donna Peter, director of the Human Resources Department.

And premiums are definitely going up, Peter said.

The City Council approved a switch from the current health care provider, CIGNA, to Aetna at its Oct. 11 meeting.

Connecticut-based Aetna promised only 11 percent rate increases across the year, while CIGNA showed a 19.6 percent increase in the new year.

While the switch will save Santa Monica taxpayers $1.3 million, the overall cost of either plan represents an increase.

The percent gives flexibility in the agreement. If they stuck with the fixed-dollar model, a new amount would have to be OK’d each year to keep City Hall’s cost from increasing.

The agreement also provides a one-time $250,000 payment to the Reserve Fund, which was established in a 2005 negotiation and subsidizes a part of the employee health care contribution.

Retirees get a benefit as well through the Retiree Medical Trust, which is used to reimburse some or all of the health insurance premiums for eligible retired employees and their dependents.

City Hall’s contribution to the retiree fund will increase 2 percent each year, for a total of $181,250 between fiscal year 2011-12 and 2014-15.

The coalition’s second concession cuts retirement benefits for all new employees hired after July 1, 2012.

Current employees accumulate 2.7 percent of their highest year’s salary for every year they work until they turn 55. That means that if they worked 20 years and retired at age 55, the worker would receive 54 percent of their highest year’s salary after they retire.

After July 1, 2012, employees will only save up 2 percent of their salary and, rather than choosing the top 12 months, they will take the highest 36 months and average those annual salaries together.

It’s impossible to guess what the savings to City Hall will be in the near term, since payouts only change as employees retire and new people are hired, Peter said.

“To see really significant salary savings can take 10 to 20 years, depending on the turnover rate,” Peter said. Many municipalities have turned to the two-tier system as the economy soured since, as Peter put it, “revenues will never keep up with cost increases.”

Those cost increases have been significant because the California Public Employee Retirement System, or CalPERS, took a $69.7 billion hit to its stock portfolio when the economy collapsed between Dec. 31, 2007 and Dec. 31, 2008.

It takes at least two years for those losses to ripple through the system, and they’re resulting in higher costs to cover promises to retiring employees.

Two-tiered systems that reduce the benefits promised in the first place are one way to solve the problem of raised costs.

They first spread through the private sector during the deep recession in the 1980s, and have become more popular in California, particularly around the pension issue, said Daniel Mitchell, professor emeritus at UCLA.

It’s easier for union rank-and-file to pass because it only impacts people who haven’t begun yet, but it can lead to problems in the future.

“The issue becomes that over time, you have two people working side by side doing the same thing, but being compensated at different rates,” Mitchell said. “Sometimes there’s concern about the morale effect of that kind of arrangement.”

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