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

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Page 2 of 7 · FY 2017-18: 7.375 percent · FY 2018-19: 7.25 percent · FY 2019-20: 7.00 percent This development means that investment returns will be relied upon less, and employer contributions relied upon more, in order to fund pension obligations. This will compound existing pension funding challenges of the City, as both the miscellaneous and safety City plans are already below the ideal level of 80 percent funded: the City’s Miscellaneous Plan is currently 70 percent funded, and the Safety Plan is currently 66 percent funded. As the assumed ROR decreases over the next three years, the funding levels of each plan will drop, thus putting the City farther behind in meeting pension obligations if no additional action is taken. ANALYSIS Over the past several years, the City has taken several steps to manage pension costs. In 2011, the City negotiated a second tier pension formula with all bargaining units, effective for all new hires after October 24, 2011. Additionally, in 2013, the Public Employee Pension Reform Act (PEPRA) was enacted at the state level, which required contracting agencies to implement a new pension formula for new hires that are new CalPERS members. PEPRA included new restrictions of pensionable compensation, designed to limit the accrual of unfunded liabilities over time. To comply with PEPRA, the City implemented a third pension tier for all employees. As these newer formulas only apply to recent hires, there has been little immediate impact on the City’s total pension costs. However, such changes will reduce future liabilities and costs over the long-term. The City also negotiated pension cost-sharing agreements with each bargaining group. Under a cost-sharing arrangement, employees agree to pay a portion of the City’s required pension contributions, in addition to the standard employee contribution required by CalPERS. Currently, employees contribute between 7.75 and 18.0 percent of their salary toward their pension benefits, depending on bargaining unit and pension tier. Although these cost-sharing agreements assist the City in paying the required annual payments to CalPERS, such arrangements do not provide any additional payment toward the City’s unfunded liabilities. Pension Obligations of the City For FY 2016-17, the City is paying $19.6 million for both pension plans: $8.1 million, or 26.3 percent of payroll, for the Miscellaneous Plan; and $11.5 million, or 42.9 percent of payroll, for the Safety Plan. The General Fund’s share of the total is approximately $15.4 million, or 78.5 percent. Other City funds, such as the Sewer and Water Funds, contribute the remaining 21.5 percent. As of June 30, 2015 (the latest actuarial valuation from CalPERS), the City’s Unfunded Actuarial Accrued Liability (UAAL) for the Miscellaneous Plan was $84.2 million, and 9.A. - Page 2