ATTACHMENT A
1 City of Rialto – Pension Funding Policy
Purpose
The purpose of this Pension Funding Policy (Policy) is to provide procedures related to fiscal protocols for the City of Rialto (City) regarding a process to accelerate the payoff for any Unfunded Accrued Liabilities (UAL) that develops as calculated annually by California Public Employees’ Retirement System (CalPERS), or for any unfunded accrued liabilities remaining after refinancing the City’s existing UAL costs through use of Pension Obligation Bonds (POB) or other financing mechanisms. The Policy is intended to support the decision-making process of the City Council and should be consistent with the overall purpose and goals of the City’s pension plan.
The City recognizes that a fiscally prudent Policy should:
• Maintain the City’s sound financial position
• Ensure the City has the flexibility to respond to changes in future service priorities, revenue levels, and operating expenditures
• Protect the City’s credit worthiness
• Ensure that all pension funding decisions are structured to protect both current and future taxpayers, ratepayers, employees, and residents of the City • Ensure that the structure of the City’s POB (or other financing mechanism) and future UAL amortization is consistent with the City’s strategic planning goals, objectives, capital improvement program, budget, and debt policy Pension Funding Policy Goals
Goal 1 – Reduce and stabilize projected pension contributions to maintain a high level of City services.
Goal 2 – Increase the funding ratio for both the City’s Safety and Miscellaneous CalPERS plans.
Funding Objective
The City’s overall objective is to maintain a plan funding range between 80% and 100%, whenever possible. Key factors relevant to the City’s efforts to achieve 80% to 100% funding of its CalPERS plan include the following items:
• The financial position of the City
• Stability of the plan and/or the affordability of the annual contributions • Benefit security
• The terms of the CalPERS contract for the City of Rialto along with any related collective bargaining agreements
• Minimum funding requirements under State Law
ATTACHMENT A
2 Actuarial Determined Contribution
Every June 30th, CalPERS completes a new actuarial valuation report and calculates the City of Rialto’s pension liability as of that new valuation date. The City’s UAL will be adjusted at every June 30th to accommodate the change in the following factors:
• Actuarial assumptions and experience changes (changes in the discount rate, changes in demographic experience, etc.)
• Actuarial gains and losses due to asset returns being higher or lower than expected
• Plan benefits
• Number of participating employees
The City is required to make the CalPERS Actuarial Determined Contribution (ADC) on an annual basis either through the Monthly Employer Dollar UAL Payment or the Annual UAL Prepayment Option. T he Annual UAL Prepayment Option is offered by CalPE RS once annually in July as an opportunity to pay the entire annual ADC in July in lieu of 12 monthly payments. The Annual UAL Prepayment Option allows the City to realize interest savings (discount) on the ADC. As an example, in July 2021 the City realized savings of
3.4% or $500,000 in exercising the Annual UAL Prepayment Option.
The financial stability of the City will determine the ADC contribution method. The ADC is made up of two parts, the Normal Cost (NC), which represents the pay-as-you-go portion of costs, and the Unfunded Accrued Liability (UAL) payment, which represents the catch- up portion of costs.
This Policy shall establish that t o the extent the City ’s financial reserves allow for it, the City Manager is authorized to annually pay to C alPERS in July the Annual UAL Prepayment Option.
Section 115 Trust
The City will establish and utilize an Internal Revenue Code (IRC) Section 115 Trust to prefund future pension liabilities. On an annual basis 10% to 50% of unrestricted fund balance will be reviewed by the City Manager or designee for presentation to City Council for approval to transfer into the Section 115 Trust. The Section 115 Trust funds will be utilized to fund future full or partial ADC payments and/or one time UAL payments. City Council approval is required for use of accumulated funds in PARS either to CalPERS as an Additional Discretionary Payment (ADP) or to offset a portion of the standard ADC.
City Council approval is required to establish and/or modify the plans investment strategy.
Annual Pension Review
Addressing retirement costs is a dynamic process. CalPERS makes adjustments annually to a City’s Normal Cost and Unfunded Accrued Liability (UAL). The City shall therefore evaluate its pension liabilities each year. After the release of the most current CalPERS actuarial report, staff shall present a summary of each plan’s funding status. New amortization levels will be specifically addressed. This information will be presented during a public City Council meeting, that will include a summary of funding status, funding progress compared to prior years, as well as any recommended actions and/or budget adjustments to address areas of concern.