Title
Adoption of Resolution to Adopt the Revised Pension Rate Stabilization Program (PRSP) and Other Post-Employment Benefits (OPEB) Funding Policy. (Finance 10024051)
Body
To: Honorable Mayor and Members of the City Council
EXECUTIVE SUMMARY
In September 2017, City Council authorized a revision of the Pension Rate Stabilization Program and Other Post-Employment Benefits Funding Policy (Policy). The main revision to the Policy at that time was to clarify the amount the City of Alameda (City) would contribute to either a Trust Fund for future CalPERS or OPEB payments, or to directly pay down the CalPERS unfunded liability.
At this time, we would like to bring forward to City Council language in which to clarify even further the amount the City will contribute to these pension and OPEB liabilities or Trust Fund assets.
BACKGROUND
The City in partnership with its employees have taken several steps to manage and reduce its pension and Other Post-Employment Benefits (OPEB) liabilities and costs. Since this Policy was enacted in October 2017, more than $30 million in additional funding has gone towards the CalPERS Plan Assets, and over $11.5 million in additional funding has gone towards the City’s Public Agency Retirement Services (PARS) Section 115 Trust Funds used to set aside funds for long-term OPEB and retirement system costs, as shown below.
|
Fiscal Year |
CalPERS Advance Payment |
Pension Trust (720) Contributions* |
PARS Section 115 Trust Contributions |
Total |
|
2016-17 |
$ - |
$ 250,000 |
$ 250,000 |
$ 500,000 |
|
2017-18 |
$ 10,695,052 |
$ 3,325,016 |
$ 3,000,000 |
$ 17,020,068 |
|
2018-19 |
$ 6,142,000 |
$ 2,047,172 |
$ 500,000 |
$ 8,689,172 |
|
2019-20 |
$ - |
$ 733,998 |
$ 250,000 |
$ 983,998 |
|
2020-21 |
$ 7,546,500 |
$ 2,515,500 |
$ 250,000 |
$ 10,312,000 |
|
2021-22 |
$ 5,755,000 |
$ 1,919,000 |
$ 250,000 |
$ 7,924,000 |
|
Total |
$ 30,138,552 |
$ 10,790,686 |
$ 4,500,000 |
$ 45,429,238 |
|
* Net of CalPERS Advance Payment |
There has been discussion within the City Council on the specific wording of the Policy and its openness to interpretation. What is being proposed to City Council is a rewrite of the current wording as well as a specific definition to what is considered the General Fund Surplus.
DISCUSSION
Material changes to the Revised Pension and OPEB Policy is as follows:
1) A definition of General Fund Surplus has been added:
a. General Fund Surplus - General Fund Surplus, as defined by this policy, is the difference between the current year and prior year General Fund “Residual fund balance in excess of policy or fund balance deficits,” found under the Net Position and Fund Balances footnote of the Annual Comprehensive Financial Report (ACFR). The amount is considered Surplus only if the current year residual fund balance is greater than the prior year residual fund balance. This amount comprises unassigned residual fund balance after meeting all annual auditing and financial reporting requirements.
2) A clarifying paragraph under “Annual Contributions” has been added:
a. After fiscal year close and the annual audit has been completed, the Finance Department shall determine if a General Fund Surplus exists. If a General Fund Surplus exists, the Finance Department will calculate the amount of General Fund Surplus. City staff will then propose half (50%) of the General Fund Surplus be used in the following manner: 75% shall be used to reduce CalPERS unfunded liability and 25% shall be contributed into the City’s Public Agency Retirement Services (PARS) Section 115 Irrevocable Trust.
3) The following text under “Annual Contributions” has been removed:
a. One-half of each fiscal year’s General Fund surplus over the 25% available fund balance shall be put into a Trust Fund or directly into paying off the CalPERS unfunded liability for either pensions or post-employment benefits.
An update on the CalPERS net pension liability:
In broad terms, there are two main parts that combine to make the City’s CalPERS Unfunded Actuarial Liability (UAL) for pension: The accrued liability and the plan assets.
Accrued Liability:
Since 2010, the CalPERS accrued liability has increased on average 5.16% per year when looking at the City’s Miscellaneous and Safety Plans combined. Service costs, changes in assumptions and benefit terms, interest on the total pension liability, and the difference between expected and actual returns all play a part in how this liability is computed. As of June 30, 2021 (the latest CalPERS annual valuation report available), the City has an accrued liability of $870,255,179 between the two plans.
Plan Assets:
Since 2010, the CalPERS plan assets for the City has increased an average of 6.80% per year between the two plans. Employer/employee contributions and net investment income are the two main drivers for the plan assets portion of the City’s UAL. As of June 30, 2021, the City has plan assets with CalPERS of $635,905,341. What is not included in this figure is our separate PARS 115 Trust Fund, which as of June 30, 2022, has a total value of $13,411,333 solely in the Pension PARS 115 Trust Fund.
What This Means:
As the Accrued Liability is larger than the Plan Assets, the City has a Net Unfunded Actuarial Liability between the two plans of $234,349,838 at June 30, 2021. Here is how this figure has looked for the previous eleven years:
ALTERNATIVES
• Propose additional updates to the Pension Rate Stabilization Program (PRSP) and Other Post-Employment Benefits (OPEB) Funding Policy.
• If no action is taken, the City may continue different interpretations of the current Policy.
FINANCIAL IMPACT
This action does not require an appropriation at this time. However, the City will be committing to using 50% of the General Fund Surplus every year to either reduce our long-term pension and OPEB liabilities or increase related assets. Appropriation of 50% of the General Fund Surplus for long-term pension and OPEB liabilities will be subject to future City Council appropriations approval.
MUNICIPAL CODE/POLICY DOCUMENT CROSS-REFERENCE
This action is in conformance with the Alameda Municipal Code and all policy documents.
ENVIRONMENTAL REVIEW
This activity is not a project and is exempt from the California Environmental Quality Act (CEQA) pursuant to Section 15378 (b) (4) of the CEQA Guidelines because it involves governmental fiscal activities which does not involve any commitment to any specific project which may result in a potentially significant physical impact on the environment.
CLIMATE IMPACTS
There are no identifiable climate impacts or climate action opportunities associated with the subject of this report.
RECOMMENDATION
Adopt a resolution amending the Revised Pension Rate Stabilization Program (PRSP) and Other Post-Employment Benefits (OPEB) Funding Policy.
Respectfully submitted,
Margaret O’Brien, Finance Director
By:
Ross McCarthy, Controller
Exhibit:
1. Pension Rate Stabilization Program (PRSP) and Other Post-Employment Benefits (OPEB) Funding Policy - Revised June 2017
2. Pension Rate Stabilization Program (PRSP) and Other Post-Employment Benefits (OPEB) Funding Policy - Revised October 2022
cc: Nancy Bronstein, Interim City Manager