Item 23 - Pension Debt Refinancing Update and Underwriter Selection

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RFP No. 21-025 EXHIBIT B estimated amount the City would need to pay to CalPERS to exit the system. Upon receiving this payment, CaIPERS would assume the full responsibility of paying all retirees and current employees benefits earned to date. The Termination Payment is calculated using a conservative discount rate (US Treasury Bond rate). In most cases the Termination Payment is viewed as cost prohibitive to fund. Alternatives to CaIPERS Notwithstanding the financial and legal constraints, we have included below a brief discussion regarding the City's theoretical options. Defined Contribution Plan (DCJ—The City would reduce its retirement costs if it converted to a defined contribution (DC) plan — effectively transferring future performance and funding risk to employees. Under a DC plan, the City would only be required to make its share of annual contributions; employees would assume the risk forthe outcome/funding level. Under a DC plan, by definition, there are no UAL (unfunded accrued liability) payments — the employee assumes general control over investment decisions and assumes the risk of its outcomes. This option requires termination of the CaIPERS contract, with the termination payment noted above. Therefore, this option is not feasible. Under current interpretation, the California Rule effectively requires employers to provide substantially similar retirement benefits to its employees. Employers outside of the CalPERS system are required to pay into social security, which adds a 6.2% payroll requirement. Split Agency/ Mixed Plan (DCJ — CalPERS does not allow an agency to create a split or mixed plan. CaIPERS prohibits is participants from offering current employees' participation in the CalPERS system and new employee participate in a DC plan. Alternative Defined Benefit Pension Plan — The City could possibly retain greater control over the investment process if it were to transfer its assets ($1.4 Billion) over to another pension plan/investment manager. In which case the liability would transfer over to the new provider. This alternative will require full approval of both CalPERS and the bargaining units. Moreover, due to the California Rule, we would assume that required annual pension contributions would essentially remain the same. To date, no public agency has transferred management of its pension plan from CalPERS to another plan manager. Such a move would require significant legal analysis, and a probable court challenge. Although hypothetically it appears legally and financially feasible — it would likely require a full transfer of assets and liabilities and thus provide limited savings. CALIPERS FUNDING OPTIONS In 2017, UFI created a pension focus group consisting of 25 public agencies with growing CalPERS plans liabilities. After roughly a year of study, we determined many agencies understood the