AgdaPkt 2021.02.22 Joint SA PFA - Laserfiche WebLink

Browse Search

8.A. - Page 23 of 42 CAPERS modified its investment strategy to a more conservative approach to reduce the likelihood of investment volatility. This is needed to ensure there is cash on hand to pay benefits statewide and to reduce the chance the public agencies will have to fill large gaps when investment returns do not meet projections. The City's unfunded pension liability is primarily related to retired or inactive (employees not currently employed by or retired from the City) employees: 52% of the unfunded liability for the miscellaneous plan (non -safety employees) is associated with retired or inactive employees, and 71% 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. 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. Subsequent deposits totaling $12.75 million, all from the General Fund, have been made through December 2020. As of December 2020, the Section 115 pension trust account was valued at approximately $27 million. The Preliminary Ten -Year General Fund Forecast includes General Fund contributions towards the City's pension liability beyond the required annual payment, including additional direct annual payments to CAPERS ranging from $250,000 to $2.5 million, and annual contributions of $500,000 to the City's Section 115 pension trust account through FY 2022-23. Trust proceeds, including investment earnings, will be used in future years to help pay for increased annual pension costs. Increasing the funds invested in the trust, and maintaining those funds over a longer timeframe, will provide greater resources to pay the City's pension costs in the future. Page 23 of 28 City of Redwood City 1017 Middlefield Road, Redwood City, CA. 94063 Tel: 650-780-7000 www.redwoodcity.org 554