CalPERS Pension Liability
Strategic Plan
Agenda Item 12.C
Nadia Feeser
March 15th, 2022
City’s CalPERS Retirement Plans
Miscellaneous Plan (All Employees except Sworn Police Officers) •First tier provides a benefit of 2.5% at age 55
•Second tier provides a benefit of 2.0% at age 60
•Third tier provides a benefit of 2.0% at age 62
Safety Police Plan (for Sworn Police Officers)
•First tier provides a benefit of 3.0% at age 50
•Second tier provides a benefit of 3.0% at age 55
•Third tier provides a benefit of 2.7% at age 57
Safety Fire Plan
•First tier provides a benefit of 2.0% at age 50
•Third tier provides a benefit of 2.7% at age 57
How are Employee Pensions Funded?
•11% Employee Contributions
•29% Employer Contributions
•60% CalPERS investment earnings
City and Employee Contribution to CalPERS
Plan
City
Rate
Employee
Rate
Miscellaneous - T1 12.20%8.00%
Miscellaneous - T2 7.65%8.00%
Miscellaneous - T3 (PEPRA)5.84%8.50%
Police - T1 20.71%12.00%
Police - T2 17.64%12.00%
Police - T3 (PEPRA)12.63%13.50%
Fire - T1 0.00%9.00%
Fire - T3 (PEPRA)0.00%12.00%
CalPERS Investment Earnings
Unfunded Pension Costs
•When CalPERS investment earnings are lower than expected, CalPERS needs to make better than expected future earnings, request higher contributions
•Other Factors: demographic changes, enhanced retiree benefits •Recovering from Past Investment Earnings Lower than Target •Public agencies have unfunded accrued liability payments amortized over 20 to 30 years.
FY 2021 to FY 2023 Pension Costs Compared to
Operating Budgets
Fiscal
Year
Normal
(current)
Pension
Costs
Unfunded
Liability
Payment
(Principal and
Interest)
All Funds
Operating
Budget
Normal
Pension as
% of
Operating
Budget
CalPERS
Unfunded
Liability as % of
Operating
Budget
FY 2021 823,816$ 1,288,444$ 34,816,106$ 2%4% FY 2022 900,278 1,532,653 41,030,496 2%4% FY 2023 909,615 1,719,008 42,008,617 2%4%
CalPERS Unfunded Accrued Liability Payments
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
POA Tier 1 POA Tier 2 POA Tier 3 Misc Tier 1
Misc Tier 2 Misc Tier 3 Fire Tier 1 Fire Tier 2
Funded Status of Each Retirement Plan
Plan
Funded
Status % as
of 6/30/20
Unfunded
Accrued
Liability (UAL)
as of 6/30/21
% of
total
UAL
% funded
all plans
Miscellaneous - T1 73.20% 9,971,433 50%36.9%
Miscellaneous - T2 90.60% 107,039 1%0.5%
Miscellaneous - T3 (PEPRA)89.10% 141,765 1%0.6% Police - T1 74.80% 7,986,248 40%30.2%
Police - T2 92.50% 39,531 0%0.2%
Police - T3 (PEPRA)85.70% 126,399 1%0.5%
Fire - T1 70.70% 1,378,007 7%4.9%
Fire - T3 (PEPRA)80.20% 10,628 0%0.0%
19,761,050 74%
Managing the Large Unfunded Liability
Payments
•Funded Status, One Measure Reflecting Health of the Retirement Plans •Still Large Unfunded Liability Payments Due to CalPERS, Peaking in FY 2031 •Effective Interest rate on this debt is 6.8%
•Making an Additional Discretionary Payment is the most cost-effective way to manage the payments •Reduces interest costs
•Reduces City’s operating costs
•Reduces unfunded liability
•Improves funded status
•City already prepaid UAL by $3 Million –saving $4.2 million in interest costs over 30 years and $382,000 per year
CalPERS Prepayment Projected Savings
Plan Prepayment Total Interest Savings FY 2022 -FY 2027 Savings
FY 2022 to FY 2042
Annual Savings
Police Safety Plan
Tier 1
$500,000 $530,832 $179,997 $51,542
Miscellaneous Plan
Tier 1
500,000 571,738 167,495 53,587
TOTAL $1,000,000 $1,102,570 $347,492 $105,129
Police Safety Plan Tier 1 Annual Payments
Before and After $500,000 Prepayment
$-
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
$900,000
$1,000,000
Police Tier 1 Current Schedule Police Tier 1 Schedule with $500K ADP
Miscellaneous Plan tier 1 Annual Payments
Before and After $500,000 Prepayment
$-
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
Misc Tier 1 Current Schedule Misc Tier 1 Schedule with $500K ADP
Recommendation
•Staff recommends that Council adopt a Resolution appropriating $1.0 million from the General Fund CalPERS Pre-payment Set-Aside to provide additional discretionary payments of $500,000 to each of the City’s CalPERS Miscellaneous and Safety Police tier 1 plans to reduce the City’s unfunded pension liability.