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6.1.C. - Page 40 (1) Make Supplemental Contributions to Ca1PERS. By making supplemental contributions to CaIPERS beyond the required payments, the Cities can reduce the amounts on which they are paying interest. The Cities generally cannot earn returns on their reserves equal to the interest rates Ca1PERS will be charging, 108 so using reserves to make supplemental contributions can result in substantial net savings over the long-term. Although not a subject of this report,109 actions taken by the County to reduce its pension costs are instructive. In FY 2011-2012 and FY 2012-2013, the County paid "supplemental contributions" to SamCERA (the plan administrator for the County's pension plans) to reduce its Unfunded Liability. These were in addition to its Annual Required Contribution (ARC)' 10 payments."' However, these supplemental contributions were applied to the entire SamCERA system, not the County alone. 112 Then, in November 2013, SamCERA and the County signed a Memorandum of Understanding (MOU) to formalize a plan to pay supplemental contributions! 13 Under the MOU, the County made two commitments. First, it agreed to pay supplemental contributions in a lump sum of $50 million in the initial fiscal year (FY 2013-2014) and then to pay an additional $10 million in each of the following nine years. Second, the County stated that it intended to maintain a minimum average employer contribution rate of 38 percent of payroll during the 10 -year period. Since the ARC would otherwise decrease each year, as the Unfunded Liability is reduced, maintaining a contribution rate higher than the ARC would provide a second source of supplemental payments. For its part, SamCERA committed to establish a Supplemental Contribution Account to receive the supplemental contributions, which would be credited just to the County, rather than all three SamCERA employers. If SamCERA's actuarial assumptions are met, the County's supplemental contributions are expected to eliminate the Unfunded Liability within 10 years (FY 2022-2023).114 The MOU includes language stating that the County's supplemental contributions are not legally binding. However, as of June 30, 2017, the MOU had been implemented on schedule. The "I City of Menlo Park, Adopted Budget, Fiscal Year 2017-18, p. 48, <httns://www. menlonark. or,2/ArchiveCenterNiewFile/Item/6273>. 109 Progress made by the County of San Mateo in planning for and reducing its pension costs is the subject of the Grand Jury's report for 2017-2018, entitled "County Pension Costs — Hard Choices Paying Off." San Mateo County Civil Grand Jury 2017-2018 report, "County Pension Costs — Hard Choices Paying Off." 110 Annual Required Contribution (ARC) is the sum of an Agencies' share of Normal Cost and, if any, the Amortization Cost. ARC is the amount an Agency is legally required to pay to the plan administrator in order to fund a pension plan. See, Brainard, Keith and Brown, Alex, The Annual Required Contribution Experience of State Retirement Plans, FY01 to FYI 3, National Association of State Retirement Administrators, March 2015, p. 2, <httos://www.nasra.ore/files/JointPublications/NASRA ARC SDotlieht.ndf>. 111 Referred to by SamCERA as the annual "statutory contribution rate." SamCERA, 2017 Comprehensive Annual Financial Report for the Fiscal Year Ended on June 30, 2017, p. 49, <httDs://www.samcera.ore/sites/main/files/file- attachments/2017cafr final.ndf>. llz County Pension Costs — Hard Choices Paying Off, p. 6. 113 Memorandum of Understanding Between the County of San Mateo and the San Mateo County Employees' Retirement System Funding, November 19, 2013. "' County Pension Costs — Hard Choices Paying Off., p. 7. 2017-2018 San Mateo County Civil Grand Jury 26