The Benicia City Council will hear an update on California Public Employees’ Retirement System (CalPERS) actuarial issues at Tuesday’s meeting.
According to a staff report by Finance Director Cindy Mosser, the city provides retirement benefits for employees through its participation in CalPERS, which allows the city to spend roughly $5.5 million per year to fund pension liabilities. However, due to changes in actuarial assumptions made to estimate future liabilities, the city’s annual obligation fund is anticipated to grow to about $14 million per year by 2030-31 and level off that amount into future years. Additionally, the pension system’s costs have risen over the last decade and CalPERS adopted a new amortization policy in February, which writes off gains and losses over 20 years rather than 30. The policy minimizes total interest paid over time and pays the unfunded liability faster, Mosser wrote.
As a result of these policy and assumptions changes, all members of the CalPERS system will have to make larger annual contributions,” she wrote. “The increased costs associated with lowering the discount rate will begin to be felt in this current fiscal year 2018-19.”
According to Mosser, these changes will increase the city’s contribution costs from $5.5 million in 2018-19 10 $14 million in 2030-31 until it levels off.
To stabilize the rates and pay down later unfunded liabilities, the city has several options noted by Mosser: issue pension obligation bonds, make payments directly to CalPERS, set aside finances in an internal service fund or establish an irrevocable supplemental 115 pension trust. Due to issues with the other options, the city is recommending the establishment of a pension trust, which the council had established interest in at a Feb. 2017 meeting.
Mosser wrote that this option has more advantages.
“One of the benefits of such a tool is that the investment parameters can be set to allow greater rates of return on investment,” she wrote. “In addition, once funds are deposited, they, and any interest earned, can only be used to meet pension obligations.”
Staff has requested consultant John Bartel include a hypothetical situation demonstrating the benefits of implementing a pension trust, using an assumed one-time fund of $1.5 million and annual funding of $500,000.
“To achieve stabilization within the miscellaneous and safety plans, funds were allocated by a percentage (40% for Miscellaneous and 60% for Safety),” Mosser wrote. “A 5% rate of return on investments were also considered for this scenario. With the funding noted the City contribution rate of 33% for the miscellaneous plan would be steady from fiscal year 2023-24 through fiscal year 2031-32. For the safety plan, a contribution rate between 73.4% to 70% could be maintained from fiscal year 2026-27 through fiscal year 2036-37.”
Mosser noted that pension trust funds may come from any source and cited a 2017 property tax appeal settlement with Valero as a potential example.
“We did not budget the funds for other purposes because we had no information about when we might receive them,” she wrote. “In addition, carving out an ongoing source of funds now so that an amount is set aside on a consistent basis, can make a difference later in covering the peak amounts required.”
Staff is recommending the council request qualified solicitation from firms to help establish a pension trust and appropriate a one-time amount of $1.5 million to begin funding it.
In other business, the council vote to approve the Work Plan for 2018-19, authorize the replacement of three police vehicles and two police motorcycles and read a proclamation in recognition of National Night Out 2018.
The council will meet at 6 p.m. Tuesday, July 24 in the Council Chambers at City Hall, located at 250 East L St. A closed session will precede the meeting at 5 p.m. to discuss legal matters. A live stream of the council meeting can also be found online at ci.benicia.ca.us/agendas.
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CalPers issue is not new. I have been writing about it for over five years. The big problem is it is going to go up by over $600,000 each and every year. That is on top of what you are already paying. So setting the money aside seems like a good idea. But it only funds present increase and does nothing about past increases which raze the base. It is simple you fund the increase but the previous years base is still there and increasing every year. You cover at once increases put that increase carry’s over year after year. Just where are you going to get 14mil in 12 years. You got me on that one.
Like social security, all pension schemes will eventually fail simply because it is a pyramid scheme writ large. Retirees do deserve to have decent resources after working hard through their productive careers. That being said…social security eventually pays about 20% annually of what you earned annually when you retire…CalPERS OTOH, pays 80% of salary at retirement. CalPERS will likely go broke faster. No easy fixes nor any angst about paying for good services rendered. Just merely pointing out that the gravy train will eventually be spoiled.
Looks like council is dealing with a real issue, for once. Not silly “let’s tax and regulate Valero” ideas.
It’s interesting that a 5% return on trust investment is noted. CalPERS, for years, has been working actuarial tables that show 10% returns. That’s why every city is in such a deep hole. Cities have to fund the gaps.
I think it’s time CalPERS comes clean with the citizens. There is no way the 80% of salary pension levels are realistic due to the fake actuarial returns posted for decades. Pension contributors never paid into the fund at levels that support these returns. Be honest and come clean. The pension will then be solvent.
Rising pension obligations are on most voter radars. All candidates last election who were endorsed by future pensioners, or big real estate, lost.
I don’t understand why public employees can’t get a salary, a 401k, and Social Security like the rest of us. What makes them so special that they should have a guaranteed defined/fixed benefit at retirement when the rest of us can only dream of that. Ever got a quote for an annuity that pays out $100,000+ per year for 30 years?
The council should remove the unknown component associated with pensions, grant new employees a 401k with match, and float a (once-off) bond to terminate the relationship with CalPERS once and for all. Then we’ll true have pay-as-you go, and more stable finances.
https://transparentcalifornia.com/salaries/benicia/
Amen!!! Government pensions used to be seen as additional compensation to offset low government salaries. That is not the case anymore! As you correctly have posted the link to transparentcalifornia.com … everyone should go to that site and see the incredibly high government salaries we pay! Ridiculous.
Either government employees should receive high pay with no benefits or pensions, or take lower salaries with the benefits … not both!!
CHRIS;The city of Benicia has taken steps to lower future pensions payouts and costs. That reduces future costs. We now are only offering a tier two at {2% @60} and PEPRA. It takes time to get all employees at that stage but it does reduce the costs little by little. Some of the other options are difficult. I do understand your frustration and I am with you. I jumped all over the council last night for not doing a better job of preparing for this huge yearly costs that could very well mean less services for this fine city mas two councilmembers suggeste3d last night. The mayor did not like my comments when I was speaking. Too bad. L love to go toe to toe with her.
That is 2% at 60 for regular employees hired after 2013. Police and fire are 3% at 50 mostly. Those hired after 2013 are 2.7% at 57. That is what is driving cities broke. That and the fact that Employees are not paying 50%
PEPRA employees will retire earlier. Tier two can go the whole time.