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Town hears pension outlook from NHA Advisors; town pension bond and 115 trust noted as mitigation tools
Summary
NHA Advisors presented the town’s CalPERS unfunded accrued liability (UAL) outlook; council and consultants discussed the $8.8 million UAL, an outstanding $18 million pension obligation bond, the $3.9 million Internal Revenue Code Section 115 trust and options to smooth future payments.
NHA Advisors presented Corte Madera’s pension outlook April 1, advising the council on the town’s $8.8 million CalPERS unfunded accrued liability and how the town’s pension obligation bond and a Section 115 trust can be used to manage future costs.
The presentation, led by Mike Meyer of NHA Advisors with Craig Hill also participating, reminded the council that the town issued a pension obligation bond in 2021 that refinanced roughly $19 million of CalPERS UAL at a lower interest rate. NHA said the town’s remaining outstanding bond principal is about $18 million at a fixed 3.09% interest rate, while the $8.8 million of UAL that remains with CalPERS is charged at CalPERS’ 6.8% discount rate and is amortized on CalPERS’ schedule for each plan.
Meyer said CalPERS earned 9.3% in the most recent reported year and that the town’s UAL should fall below $8 million when CalPERS posts its new actuarial reports. He also cautioned that CalPERS is conducting an asset-liability management study that could change assumptions (including the discount rate) and that any assumption changes could materially affect the town’s UAL and employer payments in future years.
Town staff and council members discussed reserves and withdrawal strategy. The town manager, Adam Wolff, and NHA noted the town has used savings from lower bond payments to build a Section 115 trust (about $3.9 million) and a general fund pension reserve (about $2.1 million). NHA presented a preliminary scenario showing how selectively drawing on the 115 trust could smooth general‑fund pension payments and reduce near‑term increases to the budgeted line for pension costs. NHA advised the council to review pension assumptions annually and to coordinate with the council’s finance committee when CalPERS publishes new assumptions.
Council members asked about the town’s “closed” safety plan, which NHA said is amortized through February 2039 and therefore can cause larger annual volatility in payments as that date approaches. NHA also said the town’s overall funded ratio is near 90 percent and that, because market timing and interest rates have altered the financing landscape, another pension obligation bond would be an option only if market interest rates fell substantially.
No formal action or vote was taken; the item was agendized as "receive and discuss."
