Title
Recommendation to Receive an Update on Pension Cost Savings Strategies and Invest General Fund Reserves Committed to Unfunded Pension Liabilities. (Finance 2410)
Body
To: Honorable Mayor and Members of the City Council
From: Jill Keimach, City Manager
Re: Recommendation to Receive an Update on Pension Cost Savings Strategies and Invest General Fund Reserves Committed to Unfunded Pension Liabilities
BACKGROUND
As part of the City's Fiscal Year 2017-18 and 2018-19 Budget Workshops, City staff worked with NHA Advisors (NHA) to better predict and understand the implications of the changes implemented by the California Public Employees Retirement System (CalPERS) and the financial impact those changes would have on the City's financial health. Specifically, NHA assisted city staff in developing pension cost projections based on major assumption changes by CalPERS, as well as other impacts attributable to CalPERS recent investment returns.
As outlined in the budget workshop on May 17, 2017, NHA estimated that the City's Unfunded Actuarial Liability (UAL) would be growing from $215 million to approximately $290 million over a three-year period. This was based on CalPERS discount rate (assumed earnings rate) being lowered from 7.50% to 7.00% as well as the 2015/16 poor returns of 0.6%.
Pension costs have been rising steadily, and will rise rapidly over the next 5 to 10 years. As a percent of payroll, the City's pension costs for the Miscellaneous employee plan will rise from approximately 15% to 38% by 2024/25, and from about 35% to 75% for the Safety employee plan. As shown in the graph below, pension costs are growing from 10% to over 20% of the City's total General Fund budget, crowding out other critical projects and putting pressure on the City's operations and fiscal health.
Over the past several years, the City has prudently set-aside $8 million of surplus reserves to commit toward a pension cost savings strategy. $3 million of this was fro...
Click here for full text