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City finance director says pension funding improving but long‑term liabilities persist
Summary
Finance Director Ryan Smith told council recent CalPERS gains and planned city contributions improve the pension funded ratio, but the city faces multi‑decade liabilities and smoothing rules that moderate year‑to‑year results.
Fountain Valley — The city’s finance director presented a detailed update on pension and OPEB liabilities during the Oct. 22 study session, saying recent CalPERS investment gains have improved funded status but that the city remains on a multi‑year glide path to full funding.
Ryan Smith told council the latest valuation as of June 30, 2024, put the city’s pension plan at about 77.96% funded and projected an accrued liability in the next valuation of roughly $419 million with CalPERS assets at about $320 million and the city’s PARS assets near $19 million, leaving an unfunded accrued liability in the tens of millions. Smith noted CalPERS returned 11.6% in the year referenced and explained that CalPERS uses five‑year smoothing and actuarial assumptions (including a 6.8% discount/assumed return) that spread gains and losses across multiple valuation years.
Smith said the city has increased employer contributions, including a $3 million additional pension contribution in 2025 and another $3 million budgeted in the current fiscal year, and that the city’s 20‑year plan includes $30 million in additional contributions over the next decade above required amounts. He framed the plan as intended to reach a fully funded status before Measure HH (a local sales-tax measure) sunsets in 2036, provided CalPERS experience and investment returns remain within assumptions.
On OPEB (other post‑employment benefits) Smith said the city’s net OPEB liability decreased in the most recent valuation from about $26.4 million to $25.6 million and projected next year it may fall to roughly $23.1 million as the city budgets a $2 million additional contribution to the OPEB trust. He reminded council that OPEB has no statutory required funding schedule comparable to the CalPERS pension contributions and that decisions to prefund OPEB are discretionary but helpful for stabilizing future pay‑as‑you‑go costs.
Council questions focused on valuation timing, the smoothing process, the effect of PEPRA (public employee pension reform) as newer hires shift plan demographics, and whether one‑year gains should be extrapolated over multi‑year liabilities. Smith responded that smoothing mutes annual volatility and that structural shifts (more PEPRA employees) will flatten liability growth over time.
What it means The presentation underscores that while investment gains and extra city contributions have improved funded ratios, Fountain Valley still faces long‑term pension and retiree‑health liabilities that will require sustained contributions and monitoring. The council asked staff to continue annual updates and to report if actuarial assumptions or CalPERS policy changes significantly alter projections.
Provenance (topicintro: SEG 175; topfinish: SEG 619)
