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Staff Report
City Council
Item No. 7.B
Meeting Date: March 9, 2022
From: Tami Scott, Administrative Services Director
Title: California Public Employees Retirement System (CalPERS) Annual Lump Sum Payment
City Council
RECOMMENDATION:
Authorize an allocation of $1,750,000 for a lump sum payment to CalPERS.
BACKGROUND:
In 2017 for fiscal year (FY) 16/17, the CalPERS board approved a reduction in investment rates of return from 7.5% to 7.0% on deposits of funds paid into CalPERS that became effe ctive in FY 18/19. As a result, this rate reduction increased the City’s estimated annual contribution to CalPERS. We have since seen an impact on PERS contribution rates and Unfunded Actuarial Liability (UAL) for each of our retirement plans. To mitigate this impact, we have made an annual payment to CalPERS for the past five years to help reduce this liability.
DISCUSSION:
The City of Cathedral City has eight (8) separate retirement plans with CalPERS. The three (3) primary plans are commonly referred to as the Tier 1 (Classic) plans for Fire, Miscellaneous and Police; there are two Tier 2 plans for Fire and Miscellaneous; and there are three (3) Public Employee Pension Reform Act (PEPRA) plans for Fire, Miscellaneous and Police. As of June 30, 2020, the classic plans have funded balances of 78.5%, 77.8% and 76.6%, respectively. The five Tier 2 and Tier 3 plans have funded balances at 96% or more.
As part of the budget process, the City Council directed staff to incorporate an equivalent amount of the Cit y’s annual OPEB contribution to assist in chipping away at the unfunded accrued liability to CalPERS. Where and when we can, we have been able to send CalPERS an amount in the $1.7 to $1.8 million range to assist in the process. Upon Council approval, we w ill transmit this $1.75 million to CalPERS to reduce the liability for this year’s UAL calculation.
By authorizing an annual additional payment to our UAL, the City of Cathedral City can proactively reduce future interest costs while also increasing the f unded ratio within the plans. For FY 21/22, this payment results in $ 34,708 savings to the general fund. There
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will be additional compounded savings over the remaining 22 years for the remaining UAL payments (through FY 43/44).
FISCAL IMPACT:
As part of t he budget, th e proposed amount was allocated from excess balance in the Insurance Fund in the amount of $1,750,000. The allocation does not reduce fund balance in the general fund. Although it appears, from the spreadsheet below, that we are remitting les s than the total amount needed to fully payoff the UAL f or Tier 2 and PEPRA, the difference is actually the interest savings and market earnings during the current fiscal period.
CalPERS Annual Actuarial Reports Dated July 2021
Effective June 30, 2020
March 2022 CalPERS Additional UAL Payment
06/30/2020 Proposed
PLAN TIER NAME FUNDED UAL 03/15/22 Pymt
1417 Misc Tier 1 Classic 76.8% 14,759,089 473,367
1418 Fire Tier 1 Classic 78.5% 12,363,976 563,850
1419 Police Tier 1 Classic 76.6% 19,217,734 557,721
30021 Fire Tier 2 96.7% 4,811 4,165
30611 Misc Tier 2 96.7% 14,549 12,953
25636 Fire Tier 3 PEPRA 96.8% 35,529 31,985
25637 Police Tier 3 PEPRA 96.7% 48,448 42,279
26972 Misc Tier 3 PEPRA 96.7% 72,470 63,680
TOTAL 46,516,606 1,750,000
INTEREST SAVINGS 34,708