AgdaPkt 2006-05-08 - Laserfiche WebLink

Browse Search

REPORT 6.10 Page 1 TO the Hoo'ørable Ma~or and Oi~ OØ~UFlciJ From the City Mänager May 8, 2006 Subject PERS 3D-Year Rolling Amortization Recommendation It is recommended that Council acknowledge receipt of a report from the Finance Director concerning changes that the California Public Employee Retirement System has made to how certain liabilities are amortized. No legislative action is recommended at this time. Background As a member of the California Public Employee Retirement System (PERS), the City is required to make contributions to PERS on behalf of eligible employees to finance retirement benefits these employees are eligible to receive when they retire. This contribution is made every two weeks as part of the bi-weekly payroll process and whenever any other payments are made to employees that are considered PERS compensable wages. The City currently has two retirement plans with PERS: the Safety Plan which is comprised of all sworn police and fire department employees and the Miscellaneous Plan which is comprised of all non-sworn City employees.' Each year the actuarial staff at PERS provides the City with the actuarially required contributions for each PERS plan for the subsequent fiscal year. These rates are expressed as a percentage of PERS compensable wages and generally are comprised of two components: the normal cost and a "payment on the amortization bases." The payment on the amortization bases is the amount needed to payoff any unfunded liability. At times in which the City has a surplus rather than an unfunded liability the payment on the amortization bases is a credit which lowers the City's total required contribution. In simple terms the normal cost is the amount the actuary determines is needed to pay the estimated retirement benefits prospectively. If all of the assumptions used in calculating the normal cost are achieved throughout the life of the retirement program, there would not be any unfunded liabilities or surpluses. In reality the actuary's projections are complex calculations based on many assumptions which are rarely met with complete accuracy. Also contract amendments can cause unfunded liabilities. As a result each retirement plan almost invariably has either an unfunded liability or a surplus. Annually PERS prepares an actuarial valuation for each plan. The primary purpose of these actuarial valuations is to calculate the employer contribution rate for the subsequent year. Included in the actuarial valuation is a listing of each of the components of the employer's unfunded liability. There are different ways of amortizing these liabilities depending upon the nature or cause of the liability.