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Lincoln council directs staff to explore Section 115 trust to manage $32.6M CalPERS liability
Summary
Following a presentation by NHA Advisors, the council instructed staff to pursue creation of a Section 115 trust and consider phased additional discretionary payments to CalPERS to manage a reported $32.6 million unfunded accrued liability (UAL).
The Lincoln City Council received a detailed presentation on July 9 about the city’s CalPERS unfunded accrued liability (UAL) and gave staff direction to pursue a Section 115 pension trust as part of a phased strategy to manage future pension costs.
Roy of NHA Advisors told the council the city's UAL stood at about $32.6 million on the most recent valuation and has risen from roughly $17 million last year primarily because CalPERS underperformed assumed returns. "The unfunded accrued liability is a challenge familiar to many public agencies," Roy said, and explained how CalPERS amortization bases and a lowered discount rate (now 6.8%) increase payment pressure. He presented multiple strategies including prepaying annual UAL payments (CalPERS offers a ~3.3% discount for early lump‑sum), additional discretionary payments (ADPs) to CalPERS, a "fresh start" amortization option and establishing a Section 115 trust to smooth payments.
Staff recommended, and the Fiscal Investment Oversight Committee (FIAC) endorsed, forming a Section 115 trust with an initial contribution on the order of $3.5 million and a follow‑up payment of $500,000 in year two, then evaluating ADPs in year three. FIAC member Ron Dolensek told the council the committee "wholeheartedly endorse[d]" the trust approach and that most of the $3.5 million would come from the general fund with other funds contributing proportionally. Council members discussed tradeoffs — paying CalPERS directly reduces the UAL immediately while a 115 trust offers investment flexibility and the ability to level payments during peak years — and asked staff to return with trust formation documents and adviser proposals.
Council direction was procedural: staff will move forward to set up the trust vehicle, vet trust advisers and return with implementation documents and funding recommendations for council approval. No formal appropriation or ADP was approved at the meeting; council authorized staff to proceed with trust formation planning and adviser selection for future council action.
