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8.B. - Page 19 of 122 The City's unfunded pension liability is primarily related to retired or inactive (employees not currently employed by or retired from the City) employees: 60% of the unfunded liability for the miscellaneous plan (non -safety employees) is associated with retired or inactive employees, and 73% of the unfunded liability for the safety plan (safety employees) is associated with retired or inactive employees. The City is not unique in facing these pension challenges, and public agencies across the state, including school districts and state agencies, are facing increasing pension costs. The City began reforming pension benefits in 2011, and statewide pension reform occurred in 2013. Though these efforts provide long-term relief, they are not sufficient to fully fund promised benefits. Unfortunately, no statewide pension reform measures appear to be imminent. As a result, it is up to local government agencies to absorb steeply increasing contributions and to implement other strategies that will help place their pension plans on sound financial footing. On July 17, 2018, the San Mateo County Civil Grand Jury (Grand Jury) released a report entitled, Soaring City Pension Costs — Time for Hard Choices, included as Attachment 5, regarding the increasing pension costs of the cities in San Mateo County. The report attempted to address what actions cities in the County can take to meet current and future pension obligations. Redwood City is already undertaking most of these actions and was commended for these efforts. The Grand Jury report notes that public pension costs are a large component of each city's budget and steep pension cost increases represent a serious threat to public services for all cities. In FY 2016-17, which was the most recent year under review in the report, 20 cities within the County of San Mateo spent a total of $105 million on their pension plans, representing an average of approximately 13.6 percent of their General Fund expenditures. In comparison, Redwood City spent 15.8 percent of General Fund expenditures on CalPERS costs in FY 2016-17, which is more than 2 percent above the average annual contribution. Additionally, Redwood City had funded 65.7 percent of pension obligations, which was the second lowest out of the twenty cities in the County of San Mateo. The weighted average funded status of the twenty cities was 70.5 percent. The City Council has taken a proactive and strategic approach to addressing the City's pension liabilities. The City implemented a second tier pension formula in 2011 even before the statewide Public Employee Pension Reform Act (PEPRA) was enacted in 2013. 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 has also negotiated cost-sharing agreements with each bargaining group to ensure current employees pay a greater proportion of pension costs. Employees contribute between 8.0 and 18.0 percent of their salary toward their pension benefits, depending on bargaining unit and pension tier. Although these cost-sharing agreements represent important commitments by City employees to help pay for their pension benefits and 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. In September 2017, the City Council approved establishing a Section 115 pension trust account with Public Agency Retirement Services (PARS) to pre -fund the City's pension obligations over time. An initial trust deposit of $10.5 million was made in January 2018, including $8.8 million from the General Fund and $1.7 million from other City funds, as some employees are budgeted in other funds, primarily the water and wastewater utilities. __M 00000pp— City of Redwood City 1017 Middlefield Road, Redwood City, CA. 94063 Tel: 650-780-7000 www.redwoodcity.org 245