Item 25 - Approval to Pre-Pay the City’s Safety & Miscellaneous Unfunded Actuarial Obligations FY 21-22

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Pre-Pay the City’s Safety & Miscellaneous Unfunded Actuarial Obligations FY 21-22 June 1, 2021 Page 2 1 7 6 7 (plan assets) are less than the accrued liability, there is an unfunded pension liability. This happens when actual plan performance does not meet CalPERS assumptions, such as the investment earnings rate and retiree mortality. The unfunded liability is a debt of the City, as the defined benefit plan is a promise of future pension payments to employees. The unfunded liability for both plans are as follows: Plan Type Unfunded Liability Amount at 6/30/19 Safety (Police and former Fire) $404.7 million Miscellaneous (all other employees) $302.2 million The City will receive an update on its Unfunded Liability amount as of June 30, 2020 during the summer of 2021. Each year, CalPERS requires the City to make a payment on the unfunded liability (UL). One way to reduce the City’s cost is to pay the entire annual contribution in July, rather than spreading the contribution equally over 12 months. If the City chooses to pay the entire contribution by July 31st, the contribution is reduced as follows: Plan Type UL (Pay over 12 months) UL Pre-Pay Amount Savings Miscellaneous $26,113,041 $25,244,430 $ 868,611 Safety $30,102,971 $29,101,640 $1,001,331 Projected Savings $1,869,942 Pension Debt Refinancing / Budget FY 2021-22 Assumptions: The pension debt refinancing is in-process with completion expected in the fall of 2021. Thus, staff recommends to pre-pay UL to ensure it is in receipt of the projected savings totaling $1.9 million. The FY 2021-22 budget has incorporated the assumption that the City will pre-pay is UL for the upcoming fiscal year and realize the above-referenced projected savings. ENVIRONMENTAL IMPACT There is no environmental impact associated with this action. FISCAL IMPACT The General Fund is the primary source for unfunded liability payments. Restricted funds pay for less than one-third of the contributions for miscellaneous employees. The proposed FY21-22 pre-payment will result in an estimated net savings of $1,869,942. After the City Council adopts the FY 2021-22 Budget, funds will be budgeted and made available in the following accounts for the specified year: