Long Term Financial Policy Audit Subcommittee Scott Wagner, Deputy Director November 9, 2023 Alan Alton, Chief Financial Officer
2 • - The City’s Pension Plans
- - Changes to Pensions/ City Actions
- - The Challenge
- - Section 115 Trust
- - Discussion/ Q&A
Presentation Overview
3 - Pensions are funded from three sources, employer contributions, employee contributions and investment earnings
-The main components of a pension plan are the benefit formula, actuarial assumptions and expected rate of return
-When any of these components change or don’t meet expectations, the funding status and contributions can change greatly The City’s Pension Plans
4 - Benefit formulas include years
of service, age and final
compensation to determine the
annual pension due to a retiree
- Employees are legally
protected from having their
benefit reduced after hire
The City’s Pension Plans
Benefit Formula Employee Count Hire Date
3.0% @ 50 117 Prior to 7/8/2012
3.0% @ 55 55 7/8/2012-12/31/2012
*2.7% @ 57 *126 *After 12/31/2012
Benefit Formula Employee Count Hire Date
3.0% @60 354 Prior to 7/8/2012
2.5% @55 44 7/8/2012-12/31/2012
*2.0% @62 *426 *After 12/31/2012
* PERPRA
Public Safety (sworn)
Miscellaneous
5 Example of how different formulas
impact pension benefit
Summary of Current Pension
Beneficiaries
The City’s Pension Plans
Plan
Retired
Employee
Count
Average
Annual
Benefit
Miscellaneous 1,283 35,970$
Police 304 66,027$
Fire 191 77,231$
Benefit Formula Age at
Hire
Years of
Service
Final
Compensation
Pension
Benefit
3.0% @ 50 30 25 100,000.00$ 75,000.00$
3.0% @ 55 30 25 100,000.00$ 75,000.00$
*2.7% @ 57 30 25 100,000.00$ 62,500.00$
Benefit Formula Age at
Hire
Years of
Service
Final
Compensation
Pension
Benefit
3.0% @60 30 30 100,000.00$ 90,000.00$
2.5% @55 30 30 100,000.00$ 75,000.00$
*2.0% @62 30 30 100,000.00$ 54,000.00$
*PEPRA
Public Safety (sworn)
Miscellaneous
6 - The largest funding source of pensions is investments. This has a significant benefit but it also carries risk which is assumed by the City.
The City’s Pension Plans
7 The City’s Pension Plans
8 Public Employee Pension Reform Act (PEPRA)
Reduced benefit formulas, created maximum compensation amounts and equal sharing of normal costs (increased employees contribution). Only for employees hired after 12/31/2012.
CalPERS Board Actions & Meeting New Accounting Standards Discount rate/expected return has been decreased from a high of 8.5% and is now at 6.8%. A 1% change equals approximately $200M in liability for Santa Rosa. The amortization of losses and assumption changes was changed from a rolling average methodology (50 years) to a 30-year fixed schedule. Recent actions shortened to a 20-year amortization.
Changes to Pensions
9 - Through collective bargaining all employee groups pay more than their required contribution to CalPERS. These additional contributions range by bargaining unit and pension benefit formula.
- In FY20, the City made an additional payment of $4.2M to CalPERS which reduced future UAL payments.
- In FY22 the City created a section 115 trust to prefund pension obligations City Actions
10 -CalPERS amortization schedule will continue to increase much faster than City revenues burdening City services.
The Challenge
11 The Challenge
12 The Challenge
Miscellaneous Police Fire Combined
Accrued Liability (AL) 875,334,654$ 390,403,722$ 289,651,646$ 1,555,390,022$ Market Value of Assets (MVA) 633,099,076$ 243,021,558$ 189,935,236$ 1,066,055,870$ UAL= AL-MVA 242,235,578$ 147,382,164$ 99,716,410$ 489,334,152$ Funded Ratio 72% 62% 66% 69%
Unfunded Accrued Liability (UAL) June 30, 2022 ALL FUNDS 13 - City Council funded $10M from General Fund Fiscal Stability Reserves and $4.4M from Santa Rosa Water Operating Reserves. This account can only be used to pay pension expenses and is to mitigate future pension expenses.
- Council also directed the ongoing funding of the trust through the retired debt service of the City’s pension obligation bonds. This will begin in FY24. - The directed goal of the trust was to reach one year’s contribution amount which was approximately $26M at that time. Flexibility was to be considered if our UAL amortization schedule went higher.
- FY23 returns were 6.6% net of expenses, outperforming CalPERS Section 115 Trust
14 - The City’s UAL amortization schedule has significantly increased due to CalPERS -6.1% FY21 returns.
- As in the prior year’s presentation, we are recommending a strategic use of section 115 funds prior to reaching our funding goal. - Proposed strategy would maintain balance in fund allowing investment returns to appreciate and allocating POB funding to UAL payment during highest scheduled payments.
Section 115 Trust
15 Proposed Strategy
Section 115 Trust
General Fund FY24 FY25 FY26 FY27 FY28 FY29 FY30 FY31 FY32 UAL Payment $25.4 $30.2 $32.2 $34.5 $36.4 $40.4 $41.3 $42.1 $40.4 Funded Ratio 67% 68% 69% 71% 72% 74% 76% 78% 80%
115 Contribution $0.0 ($1.8) ($3.0) ($3.1) ($3.2) ($3.3) ($3.4) ($3.5) ($3.6) Net UAL Payment $25.4 $28.4 $29.2 $31.4 $33.2 $37.1 $37.9 $38.6 $36.8 Water 2023-24 2024-25 2025-26 2026-27 2027-28 2028-29 2029-30 2030-31 2031-32 UAL Payment $4.7 $5.5 $5.9 $6.4 $6.7 $7.6 $7.8 $8.0 $7.4 Funded Ratio 72% 73% 74% 75% 77% 78% 80% 82% 84%
115 Contribution $0.0 ($0.3) ($0.5) ($0.5) ($0.5) ($0.5) ($0.5) ($0.5) ($0.5) Net UAL Payment $4.7 $5.2 $5.4 $5.9 $6.2 $7.1 $7.3 $7.5 $6.9 Scenario - Investment return earning 6.8%
Scenario - Investment return earning 6.8%
16 Questions / Comments