Talks on Retirement Benefits Fail : Manhattan Beach: The City Council sets an Aug. 20 public hearing after private negotiations to reduce the ex-city manager’s pay break down.

Negotiations between Manhattan Beach and former City Manager David J. Thompson broke down in closed session Tuesday night after the two sides failed to agree on a reduction in Thompson’s controversial retirement pay, which is $50,000 a year more than he earned in his last year on the job.

The council then set a public administrative hearing for Aug. 20. At the hearing, Thompson will, for the first time, speak publicly about his $139,000-a-year package, which stunned the city when it was uncovered in May by the city treasurer.

City Atty. Carl K. Newton said that after the hearing, the council--which wants to reduce the retirement benefit--will be free to lower the amount or allow it to continue at its present level.

Newton said the 62-year-old Thompson, who retired in May, 1990, will be allowed to present information he believes the council should have before making a decision. He said that if Thompson is unhappy with the outcome, he has the option of suing the city.

“He’ll have to tell us why he thinks his present retirement is acceptable,” said Councilwoman Pat Collins after the meeting. “We have the last and best offer on the table, and Mr. Thompson is free to accept that offer up until the administrative hearing.”

Neither the city’s offer nor Thompson’s counteroffer was disclosed.

The council will also hear the city’s position from City Manager Bill Smith and attorneys on the negotiating team. No public testimony will be taken.

The impasse, which came after a series of private negotiations that began in June between representatives of the city and Thompson, surprised some at City Hall, who thought that an agreement would be reached.

“We got closer and closer, but not close enough,” said Smith, who replaced Thompson and was part of the city’s negotiating team. “I still hope we can reach an agreement. There are a lot of ill feelings on both sides.”

Mayor Bob Holmes agreed, saying, “We have tried very, very hard to come to some sort of fair agreement, and we just couldn’t do it.”

Thompson, who still lives in Manhattan Beach, could not be reached for comment Wednesday.

The amount of Thompson’s retirement pay is based on a final-year employment agreement he made with the council that allowed him to take certain benefits in cash, notably unused vacation time and sick leave he built up over his 16 years as city manager.

Thompson earned $88,968 in salary during his final year. But council members have said they didn’t know the agreement would artificially inflate his final-year compensation to $237,875.14--the amount on which his retirement benefits are based.