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Commission hears update on CalPERS unfunded liability, staff cites $12 million in recent discretionary payments
Summary
Staff updated commissioners on the city's CalPERS unfunded accrued liability, noting $5M ADPs in 2021 and 2024 and a $2M payment last month, a funding ratio rise to about 72.7%, and plans to consider a Section 115 trust after reaching an 80% target.
At the same meeting, the presenter delivered the commission's annual update on the city's CalPERS unfunded accrued liability (UAL), reviewed recent discretionary payments intended to reduce the UAL, and discussed longer-term funding tools.
The presenter explained that the city's CalPERS costs include two pieces: the normal cost (payroll-based contributions for current service) and the UAL payment that amortizes past shortfalls. Staff described the UAL as driven by actuarial assumptions and the CalPERS discount rate and emphasized that CalPERS data lags (staff said the most recent complete data are about 18 months old).
Staff reported that the city made a $5,000,000 additional discretionary payment (ADP) in 2021, another $5,000,000 ADP last year and an additional $2,000,000 payment last month to accelerate reducing the UAL. The presenter said those payments helped lift the city's overall funding ratio to about 72.69% based on FY24 data and that the market value of assets rose by roughly $9 million relative to liabilities in the most recent report.
Commissioners asked about CalPERS' recent reduction of the discount rate to about 6.5% and how that affects city payments; staff said lower discount rates tend to raise required UAL contributions. The presenter also described a policy trigger: once the city reaches an approximate 80% funding target, staff intends to consider establishing a Section 115 trust that would allow more aggressive investment of reserve dollars to help offset future pension costs.
A commissioner asked about the feasibility and cost of leaving CalPERS. The presenter warned that exiting CalPERS carries very large one-time costs and that earlier analyses found exit would be prohibitively expensive for most agencies; the presenter said current employees' existing benefits would remain tied to CalPERS in any exit scenario.
The chair and commissioners requested follow-up: staff will return with the finalized fund-balance presentation, projected UAL payments incorporating the recent ADPs, and any timeline for Section 115 trust consideration. No policy decision or vote on pension strategy was taken at the meeting.
