Item 21 - Consider Pension Debt Refinancing and Policy

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4 Key Factors Driving Pension Liabilities Prior to legislative changes facilitating changes to CaIPERS retirement plans, the State of California and CaIPERS member agencies, many local agencies were considered "super funded", which means they had over 100% of their respective CalPERS plans funded. However, in 1999 and 2001, SB 400 and AB 616 were passed by the legislature granting member agencies to enhanced existing benefits for safety and miscellaneous plans. The allowance of enhanced benefits allowed for future retirees to capture a higher benefit level based on prior service with a current employer. The retroactive benefit was unfunded and immediately created unfunded liabilities in most, if not all pension plans, upon adoption. The remaining four (4) drivers are based on the following: 1. CalPERS Plan Investment Returns; 2. Cost of Living Adjustments; 3. Demographics (Life Expectancy); and 4. CalPERS Contribution Policies With the adoption of the Public Employees' Pension Reform Act (PEPRA) in January 2013, the ability to provide enhanced benefits was eliminated. However, the remaining four drivers remain in effect and continue to impact the funding status of CalPERS plans throughout the state. In the sections below, we will focus on the impacts of investment returns and CaIPERS policy changes including demographics and contribution policy changes. Pension Plan Reporting Basics CalPERS provides two annual "aggregate" actuarial reports for the City's Miscellaneous and Safety employees, respectively. Each group of employees has two tiers: 1st Tier or Classic, and PEPRA. The actuarial reports group together both tiers into a single report. — they only provide a single unfunded accrued liability (UAL). The plans are funded through two (2) categories: 1) Normal cost; and 2) Unfunded Accrued Liability. Normal Costs - Since Normal Costs are based on a percentage of payroll, they are directly linked to the size of the City's payroll and are reported by tier. A portion of these payments are made by City employees based on negotiated terms. Unfunded Accrued Liability ("UAL") - Similar to most CaIPERS Plans across the state, the City's UAL represents a financial shortfall of the Plan to meet current benefit funding levels. As of the actuarial report dated June 30, 2018, the UAL was $681 million. The City's most recent UAL for June 30, 2019 is $707 million, reflecting an increase in of $25.8 million from the prior year (see chart below).