Mount Shasta council adopts pension management policy to address CalPERS liabilities

The Mount Shasta City Council on Jan. 27 adopted a pension management policy designed to create an annual framework for managing the city's CalPERS liabilities and reduce long-term costs.

The policy sets an 85% funded target for the city's pension plans and directs staff to review pension liabilities annually and present budget-year recommendations. Andrew Flynn, a registered municipal adviser with California Municipal Advisors, told the council the goal is to “build a culture of discipline” that combines incremental annual steps with, where appropriate, larger refinancing actions.

Flynn explained the city’s challenge stems from the assumed CalPERS investment return that underlies contribution calculations. “The 6.8% is determined by CalPERS,” he said, meaning that unfunded liabilities are effectively carrying that assumed growth rate. He described a Section 115 trust as “an investment vehicle ... still dedicated to your pension obligations” that can provide flexibility if the plans become super-funded.

Council members asked for clarification on why CalPERS’ assumed rate produces higher effective costs than municipal borrowing. Flynn answered that IRS rules prohibit tax-exempt borrowing to pay pensions and that borrowing options would be taxable but can still be economically viable; he added the pension obligation is a rolling responsibility that continues as new employees accrue benefits.

A public commenter, Johanna Altorfer, questioned fees and governance of a 115 trust. Flynn responded that fees vary by provider, that CalPERS offers low-fee options, and that the trust should be used within an overarching policy so it is not managed in a silo.

The council approved the resolution adopting the pension management policy (listed in the agenda as CCR-25-8). The measure passed unanimously.