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CalPERS unfunded liability update: El Cerrito hears $89 million UAL and options to smooth payments
Summary
NHA Advisors presented an update showing El Cerrito's $89 million unfunded accrued liability (UAL) with scenarios for amortization, Section 115 trust use and the risks from potential CalPERS assumption changes.
NHA Advisors told the El Cerrito City Council on May 20 that the city—s CalPERS unfunded accrued liability (UAL) totaled about $89 million across its safety and miscellaneous plans and that the city—s payment schedule will be sensitive to upcoming CalPERS assumption decisions.
Mike Meyer of NHA Advisors explained the UAL is the shortfall between pension liabilities and assets and said that while CalPERS earned 9.5% in the most recent fiscal year (which will lower the UAL when actuarial reports are posted), the system—s long-term discount rate has fallen from its historical 8.25% to 6.8% and could be revised again this fall. That, combined with compressed amortization periods, has driven higher employer payments in many member agencies including El Cerrito.
Why it matters: The UAL shapes the city—s multi-year budget. NHA—s presentation showed the city—s UAL is concentrated in the safety plan ($63M) with the miscellaneous plan comprising the balance ($26M). City staff and the council discussed using the Section 115 trust to smooth peak payments and reduce volatility.
Options NHA presented included prepaying UAL, directing additional discretionary payments (ADPs) to CalPERS, increasing Section 115 trust deposits, and considering a "fresh start" amortization (shorter term, higher annual payments). Meyer warned that a fresh start can—t be undone and that CalPERS assumption changes could materially increase required payments.
Council Q&A focused on whether the city should increase deposits to the Section 115 trust or pursue ADPs to CalPERS. NHA noted the trust allows flexibility (withdrawals in high-payment years) while ADPs directly reduce the liability reported to CalPERS and yield a credit at the assumed return rate (6.8%). Staff later proposed Section 115 injections in the council—s one-time funding discussion.
Ending: Councilmembers said they wanted to consider adding Section 115 deposits as part of one-time allocations and asked staff to return with scenarios; no formal pension policy change was adopted at the presentation.
