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Hanford hears update on CalPERS unfunded liability; advisers say bond earlier saved roughly $3 million
Summary
City finance staff and outside advisors reviewed Hanford’s CalPERS unfunded accrued liability, summarized the 2022 pension obligation bond (POB) restructuring and warned the city to plan for rising pension costs as CalPERS revises assumptions.
City Finance Director Chris Tavares and outside financial advisers from NHA Advisors briefed the council on the city’s CalPERS unfunded accrued liability (UAL), the results of a 2022 pension obligation bond and factors that could raise pension costs in coming years.
Mike Meyer of NHA Advisors told the council the city currently shows a UAL of about $35.6 million, split roughly between safety and miscellaneous plans, and said CalPERS’ recent investment return of 9.3% will lower the ongoing UAL this summer. He reviewed the city’s 2022 decision to issue pension obligation bonds (POBs) to restructure about half of its UAL and noted that those bonds were issued at an average interest rate of about 4.39 percent; CalPERS UAL interest and amortization rules currently use a 6.8 percent discount rate and a 20‑year amortization schedule.
Meyer and staff explained that, had the city not issued the POBs in 2022, the UAL would be materially higher — they estimated a hypothetical UAL of about $65 million — and the city’s annual pension payments would be significantly larger. He said the POB restructuring has already produced approximately $3 million in savings in the first few years compared with the higher CalPERS‑only payment path, and that those savings helped the city grow general‑fund reserves.
The presentation described key drivers behind higher liabilities statewide: lower long‑term investment returns compared with past assumptions, reductions in the CalPERS discount rate and changes in actuarial assumptions. Meyer noted CalPERS’ ongoing asset‑liability management study and said the system’s quadrennial review may lead to assumption changes this fall that could increase local costs. He also highlighted local management options discussed in the presentation, including prepaying obligations to capture a discount, negotiating labor costs, creating a Section 115 trust to set aside reserves for pension obligations, and cautious use of restructuring in future market conditions.
Councilors asked detailed questions about investment drivers and whether reserves could be used to smooth future payment spikes; advisers said the city’s growing reserves put it in a position to consider prepaying or using a trust to dampen volatility but cautioned that changes to CalPERS assumptions remain a major uncertainty.
No formal action was taken; the briefing was provided to inform budget development and long‑range financial planning.
Provenance: The item was introduced as “presentation regarding the city's CalPERS unfunded accrued liability and pension obligation bond update” and the formal portion of the presentation concluded when NHA Advisors finished and staff took questions.
