AgdaPkt 2017-05-22 Joint SA PFA - Laserfiche WebLink

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Page 1 of 7 REPORT To the Honorable Mayor and City Council From the City Manager May 22, 2017 SUBJECT Pre-funding Pension Obligations Through the Establishment of a Public Agencies Post- Employment Benefits Section 115 Trust RECOMMENDATION Direct staff to: 1. Prepare, for Council approval, Agreement to Establish a Public Agencies Post- Employment Benefits Section 115 Trust with Public Agency Retirement Services (PARS) in order to pre-fund the City’s pension obligations; 2. Fund the initial Trust deposit with the Fiscal Year 2016-17 year-end remaining fund balance that is beyond a 15 percent General Fund reserve threshold; and 3. Return to the City Council for approval of documents required to establish the Trust BACKGROUND The City has two pension plans with the California Public Employees’ Retirement System (CalPERS): one to fund pensions for miscellaneous (non-safety) employees and one to fund pensions for safety employees such as sworn fire and police personnel. Pension benefits are funded by employer and employee contributions and by investment earnings on those contributions. Numerous assumptions, including actuarial assumptions about employee and retiree populations and assumptions about investment returns are used to determine the funding required for payment of pension benefits. One of the most critical assumptions in attaining full funding goals is the rate of return (ROR) on investments in the plans. CalPERS’ current annual rate of return assumption is 7.5 percent. Assuming this rate of return is attained, then funding of pension obligations would be derived 66 percent from investment gains, and 34 percent from contributions by employers and employees. The actual ROR has been volatile over the past twenty years, where periods of gains have been followed by losses; however, the gains have not offset the significant losses over time. The ROR was 2.4 percent in FY 2014-15, and 0.6 percent in FY 2015-16. As a result of past performance, the long low-interest rate environment, and a movement towards a more risk-averse investment portfolio, the CalPERS Board has approved a plan to reduce the assumed ROR from 7.5 percent to 7.0 percent over a three-year period, as follows: 9.A. - Page 1