Council directs staff to set up Section 115 trust to smooth upcoming pension payment peak

Finance Director Gretchen Hoskins and consultant Mike Meyer of NHA Advisors briefed the council on Auburn’s unfunded actuarial liability (UAL) tied to CalPERS. Meyer explained how CalPERS valuation changes and investment returns create a multi‑year “mountain peak” in employer payments and noted the city’s 2021 pension obligation bond (POB) reduced some volatility but did not eliminate future UAL exposure.

Meyer presented options for using the city’s roughly $1,000,000 pension reserve: (1) establish a Section 115 trust that allows broader investment choices and year‑by‑year withdrawals to smooth payments, (2) make an additional discretionary payment (ADP) to CalPERS to reduce the UAL directly, or (3) pursue other debt strategies. He said the Section 115 trust offers the greatest flexibility to target smoothing during the 4–6 year peak the city faces and recommended that approach. An ADP would reduce payments over a longer (about 18‑year) horizon but would permanently remove the funds from local control.

Council members asked clarifying questions about whether annual decisions could be made from the trust based on budget conditions; Meyer and staff confirmed the plan is to re‑evaluate each year and to return a formal resolution to council establishing the trust and the administrative procedures. The item before council on March 9 asked only for direction; staff will return with the trust documents and an implementation schedule during the budget process.

No binding payment schedule was approved at the meeting; council gave staff direction to prepare the Section 115 trust documents and bring them back to the council for final action.