Fremont City Council Meeting: 02/10/26 07:00 PM
3300 Capitol Avenue Div/Dept: Finance Department
Fremont, CA 94538 Category: Plans, Policies and Studies
SCHEDULED
Sponsors:
COUNCIL STAFF REPORT (ID # 5628) DOC ID: 5628
Updated: 2/6/2026 7:58 AM by Dina Lewis Page 1
PENSION LIABILITY FUNDING POLICY - Adopt a Resolution Amending the Pension Liability Funding Policy
Contact Persons:
Name: David Persselin
Title: Finance Director
Div/Dept: Finance Department
Phone: 510-494-4631
E-Mail: [email protected]
Executive Summary: Under the City Council’s adopted pension liability funding policy, accelerated pay-down of the City’s unfunded accrued pension liability (UAL) over the last nine years has achieved the policy goal of stable annual contributions. Because the policy as currently written would require the City to make unnecessarily large additional contributions beginning in FY 2026/27, staff recommends that the City Council amend the policy.
BACKGROUND: The City provides pension benefits to retirees through its Safety (sworn police and fire) and Miscellaneous (all other) retirement plans administered by the California Public Employees’ Retirement System (CalPERS). These pension benefits are funded through annual employee and employer contributions, with the employer responsible for paying off any UAL created by retroactive benefit enhancements, investment underperformance, or changes in actuarial assumptions.
Contribution amounts for both City plans are determined annually on an actuarial basis as of June 30 by CalPERS. The actuarially determined contribution rate is the estimated amount necessary to finance the costs of benefits earned by employees during the year, with an additional amount to finance the UAL.
In December 2016, the CalPERS Board approved lowering the assumed rate of return on pension assets, which had the effect of significantly increasing the UAL. Additionally, the CalPERS amortization methods used at that time delayed the paydown of the unfunded liability, causing the City to “borrow” from CalPERS at its expected earnings rate (over 7% at that time). As a consequence, the City’s UAL contributions were expected to climb from about $22 million in FY 2017/18 to a projected peak of almost $50 million in FY 2030/31.
Over the next thirty years, repayment of the amount borrowed from CalPERS was projected to cost the City $57 million.
In November 2017, to minimize borrowing costs and stabilize future contributions, the City Council adopted its pension liability funding policy. This policy directs the City Manager to incorporate an additional pension contribution payment into development of the proposed operating budget each year using a minimum additional contribution equal to 10% of the unfunded liability contributions specified by CalPERS, with a larger additional contribution contingent on availability of funds.
DISCUSSION/ANALYSIS: The City’s accelerated pay-down of the UAL, assisted by CalPERS investment overperformance in three of the last five years, has achieved the policy Council Staff Report (ID # 5628) Meeting of February 10, 2026 Updated: 2/6/2026 7:58 AM by Dina Lewis Page 2
goal of stable contributions. The projected annual payments required by CalPERS through FY 2031/32 average just over $46 million, roughly the same annual amount that we’ve paid over the last three years. After 2032, the projected annual contributions begin to decline.
Although it is possible that poor CalPERS investment results or an adverse change in actuarial assumptions could increase our future contribution requirements, the anticipated additional contributions needed to maintain the $46 million stabilized payment level have dropped into the 2.5%-3.5% range. Starting with the FY 2026/27 pension contributions, the current pension liability funding policy would require us to pay significantly more than necessary to maintain the current stabilized payment level ($4.5 million vs. $1.4 million as the additional contribution). Consequently, staff are recommending that the City Council amend the policy.
To avoid locking the City into annual contributions that are higher than necessary, staff recommend that the City Council amend the pension liability funding policy to direct the City Manager to incorporate the unfunded liability contributions specified by CalPERS into development of the proposed operating budget each year, with any additional contributions contingent on availability of funds.
FISCAL IMPACT: The amended policy will ensure that the City continues to pay down its unfunded pension liability at the actuarially determined level while avoiding any unnecessary overpayment that would result under the current policy. For FY 2026/27, staff will plan to include an additional contribution of approximately $1.4 million to maintain the current stabilized funding level.
ENVIRONMENTAL REVIEW: Action on this item represents a fiscal, organizational and administrative governmental activity that will not result in physical changes in the environment. Therefore, it is not a project subject to review under the California Environmental Quality Act (CEQA) pursuant to CEQA Guidelines Section 15378.
ATTACHMENTS:
• Draft Resolution Amendment to Pension Liability Funding Policy
RECOMMENDATION: Adopt a resolution amending the pension liability funding policy as described in this staff report.