HomeMy WebLinkAbout75A-3 - PRE-PAYMENT UNFUNDED LIABILITYREQUEST FOR
COUNCIL ACTION
CITY COUNCIL MEETING DATE:
JUNE 16, 2020
U11
TITLE:
APPROVE PRE -PAYMENT FOR THE
CITY'S CONTRIBUTION TO BOTH THE
MISCELLANEOUS AND SAFETY
EMPLOYEE PENSION UNFUNDED
LIABILITY FOR FY 2020-21 FOR A TOTAL
AMOUNT NOT TO EXCEED $47,964,199
(GENERAL FUND AND NON -GENERAL
FUND)
CLERK OF COUNCIL USE ONLY:
APPROVED
❑ As Recommended As Amended
❑ Ordinance on 1s' Reading
❑ Ordinance on 2i1 Reading
❑ Implementing Resolution
❑ Set Public Hearing For
CONTINUED TO
/s/ Kristine Ridge FILE NUMBER
CITY MANAGER
RECOMMENDED ACTION
1. Approve a $22,612,766 pre -payment for the City's annual Unfunded Actuarial Liability to
California Public Employees Retirement System (CaIPERS) — Miscellaneous Plan for Fiscal
Year 2020-21, to save $778,061.
2. Approve a $25,351,433 pre -payment for the City's annual Unfunded Actuarial Liability to
California Public Employees Retirement System (CaIPERS)— Safety Plan for Fiscal Year2020-
21, to save $872,293.
DISCUSSION
The City provides a defined benefit pension plan to its employees, managed by CaIPERS. As
employees provide service and accrue service credit, the City incurs a liability. Contributions from
both the City and employees offset the liability. When the contributions (plan assets) are less than
the accrued liability, there is an unfunded pension liability. This happens when actual plan
performance does not meet CaIPERS 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
Safety (Police and former Fire)
Miscellaneous (all other employees)
Unfunded Liability Amount at 6/30/18
$388.0 million
$293.1 million
The City will receive an update on its Unfunded Liability amount as of June 30, 2019 during the
summer of 2020. Each year, CaIPERS requires the City to make a payment on the unfunded
75A-3-1
Approval to Pre -Pay the City's Safety Plan Unfunded Actuarial Obligations
June 16, 2020
Page 2
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 315t, the contribution is reduced as follows:
Plan Type UL Pre -Pay Amount Savings
Miscellaneous $22,612,766 $ 778,061
Projected Savings $1,650,354
FISCAL IMPACT
The proposed FY20-21 budget includes an assumption that the City will make the pre -payment,
resulting in an estimated net savings of $1,352,496 ($1,650,354 savings, less approximately
$297,858 reduced investment income).
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.
Accounting Unit
Fund
Accounting Unit,
Fiscal Year
— Account No.
Description
Account No.
Amount
Description
Miscellaneous Plan
Unfunded Liability
FY 2020-21
01105020-61102
General Fund
(UAL), Retirement —
$16,265,880
Employer Unfunded -
Miscellaneous
Unfunded Liability
FY 2020-21
Various (Non
Various (Non
(UAL), Retirement —
$6,346,886
General Fund)
General Fund)
Employer Unfunded -
Miscellaneous
Total
$22,612,766
Safety Plan
Unfunded Liability
FY 2020-21
01105020-61103
General Fund
(UAL), Retirement -
$17,085,890
Employer Unfunded -
Police
01105020-61104
General Fund
Unfunded Liability
$8,265,543
FY 2020-21
(UAL), Retirement -
Employer Unfunded -
Fire
Total
$25,351,433
AT:SV
75A-3-2